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Follow Goldman With These ETFs for 2018

Sanghamitra Saha
Is (LXFR) Outperforming Other Industrial Products Stocks This Year?

The year 2017 has been great for stocks. Now investors are waiting with bated breath for what the coming year has to offer. Renowned brokerage house Goldman Sachs has shed some light on it this. So, investors keen on following Goldman Sachs research, may find the below-mentioned ETF strategies beneficial.

Four Rate Hikes in 2018

Thanks to a tight U.S. labor market and a better inflation scenario, the Fed plans to hike interest rates four times next year. However, Wall Street’s top banks believe that the Fed will likely enact three rate hikes in 2018.

This situation may result in a rising rate environment and bode well for preferred ETF investing. Preferred stocks are hybrid securities having characteristics of both debt and equity. Preferred stocks pay holders a fixed dividend, like bonds.

These types of shares normally get priority over equity shares both in case of dividend payments as well as at the time of liquidation, if the company fails. Preferred stocks are thus relatively stable and usually exhibit a low correlation with other income-generating assets.

These products are interest rate sensitive albeit lesser than the bond space. However, a high-yield opportunity might present them as potential bets once the Fed expedites more hikes. iShares U.S. Preferred Stock ETF PFF which yields around 5.81% annually may well guard your portfolio even if there is a capital loss (read: Global X Launches The Cheapest Preferred ETF).

Upbeat Global Growth

Goldman analyst Charles Himmelberg expects the global economy to expand 4% in 2018 on a real gross-domestic-product basis. This upbeat growth momentum makes it necessary to look at global ETFs like Davis Select Worldwide ETF DWLD. The fund looks to deliver long-term growth of capital by investing in common stocks issued by both the United States and foreign companies (read: ETFs in Focus as IMF ups Global Growth Forecast).

Hot Emerging Markets

Goldman favors emerging market (EM) ETFs. The EM segment has been doing well on improving global economic fundamentals and accommodative developed market central banks that are still keeping interest rates low and driving investors toward the relatively high-yielding EM bloc.

Some of other reasons for this outperformance were a still-subdued greenback, commodity market strength and policy easing in several EM economies that facilitated growth. Sound earnings and relatively cheaper valuation than U.S. stocks should push the MSCI Emerging Market Index up 15% to 1,300, as per Goldman. PowerShares DWA Emerging Markets Momentum Portfolio ETF PIE appears a good pick on this regard (read: EM ETFs: What You Need to Know Before Investing).

Bullish on Euro

In a historic meeting in October, the ECB announced that it would extend its asset-purchase program through September 2018 at a reduced rate. The meeting marked the ECB’s first withdrawal of stimulus. Probably, this gradual tightening made Goldman bullish on Euro.

Goldman expects the euro-yen rate to head to 140, about 5% higher than the current levels, with a stop at 130. This puts CurrencyShares Euro Trust FXE in focus (read: ECB's Dovish Taper Boosts These ETFs).

Industrial Metals to Sizzle

Uptick in global activity should bode well for industrial metals. Manufacturing activity is looking up in most leading countries. Several heavy metals rode high this year on favorable demand-supply dynamics and a subdued greenback. iPath Pure Beta Industrial Metals ETN HEVY thus proves to be a good bet (read: 3 Red Hot Base Metal ETFs).

Commodity-linked Currencies

According to Goldman, “a basket weighted 25 percent in the Brazilian real, 25 percent the Chilean peso and 50 percent the Peruvian sol should deliver a total return of 8 percent versus the U.S. dollar, estimate the strategists. They would exit the trade should this position fall 4 percent from current levels.” WisdomTree Brazilian Real Fund BZF could emerge a decent bet.

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