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Build Your Portfolio With 4 ETFs in Q4

WF vs. BEN: Which Stock Is the Better Value Option?

We are now in the final quarter of the year. The journey so far has been smooth thanks mainly to the Trump trade and rebounding of the global economy. The first quarter of the year showed feeble growth, the second quarter saw stellar 3.1% growth and the third quarter was spent mainly on hurricanes, North Korea’s nuke-related tensions and an energy market rally.

All these mixed forces have helped SPY gain more than 12%, DIA add about 13.5% and QQQ move higher by about 21.8% so far this year (as of Oct 2, 2017). With the fourth quarter likely to see the events stated below, investors can expect the same strong show.

Key Events to Take Place in Q4

Holiday Season: With the final quarter of the year underway, all eyes must have turned toward the performance of retailers as the October-November period embraces the key holiday season. As loads of sales-boosting events like Halloween, Thanksgiving, Cyber Monday, Black Friday and Christmas fall in this quartile, the sector generally sees a sales boost.

According to a report by Forrester, U.S. online holiday sales will surge 12% to $129 billion in 2017 compared with $115 billion last year while brick-and mortar holiday sales will likely nudge up 0.3% to $549 billion this year.

On the other hand, Deloitte expects a 4.5% jump in holiday spending, higher than the 3.6% gain seen in the last holiday season. E-commerce sales are expected to surge 18% to 21% during the 2017 holiday season compared with a 14.3% rise in 2016.

Possible Fed Tightening: Talks of a rate hike in December were rife after the Fed stayed put in its September meeting but maintained an upbeat outlook on the U.S. economy. A 13-year high manufacturing data lately cemented this policy tightening possibility. Plus, there are chances of reverse QE (read: Top ETF Stories of Third Quarter).

Likely Passage of Tax Reform: With several failed attempts to enact health-care reform, hopes may not be too high about the recently proposed tax reforms by the Trump administration. But the administration will leave no stone unturned to enact at least a leaner version of a tax (cut) reform to confirm its stay in power. So, the broader market should feel an air of optimism in the fourth quarter.

4 ETFs to Buy

In this light, we highlight four ETFs that could be great picks for the fourth quarter.

iShares U.S. Broker-Dealers & Securities Exchanges ETF IAI

Since the Fed has higher chances of acting in December, a rising interest rate scenario would be highly profitable for the financial sector. Plus, since the stock market remains steady in the fourth quarter, we can expect increased broker-dealer activity. We pick this broker-dealers ETF which will likely benefit from rising rates and a recovering economy.

Amplify Online Retail ETF IBUY

As we have already indicated that most researchers are pointing to higher online holiday sales, a look at IBUY seems necessary. Investors should also note that the consumer discretionary sector is cyclical in nature, and normally performs better in a trending economy, irrespective of the rate hike fear. The cyclicality of the sector and an expected surge in sales makes IBUY our choice (read: Retail ETFs in Focus on Early Holiday Sales Forecast).

iShares PHLX Semiconductor SOXX

Electronics are likely to be at the top of potential 2017 Black Friday bargains, as per analysts. Salesforce expects that Black Friday will be the busiest digital shopping day in the history of the United States, surpassing Cyber Monday as the U.S. digital shopping day for the second consecutive year.

BestBlackFriday.com indicated that though Apple stores don't strategize any Black Friday sale, several other electronics retailers will keep Apple products in their deals. Digitimes noted that a lot of Apple suppliers of the wearable products are seeing strong growth prospects in Q4.

As a result, companies that make components for Apple products and other electronics should gain traction. Higher demand from emerging technology applications like tablets and smartphones and the need for mining soaring bitcoins are tailwinds to the semiconductor space (read: Play Nvidia's Surge With These ETFs).

Pacer US Small Cap Cash Cows 100 ETF CALF

As per an article published on CNBC, small companies, which are more domestically focused and have less foreign exposure, pay huge taxes in America. This is because these pint-sized companies can’t pile cash in foreign lands. So, a slash in tax rates – if enacted – would give a big-time benefit to these companies.

Moreover, due to relaxation in individual tax structure, Americans will also be able to splurge in economic activities. This in turn should benefit small-cap ETFs. Plus, cash-rich companies provide a cushion against unseen volatility (read: The Coolest New ETFs of 2017). 

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ISHARS-PHLX SEM (SOXX): ETF Research Reports
ISHARS-US BR-D (IAI): ETF Research Reports
AMPL-ONLN RETL (IBUY): ETF Research Reports
PACR-US SC CC1 (CALF): ETF Research Reports
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Zacks Investment Research
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