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Trump Slump to Oil Slide: Top ETF Stories of First-Half 2017

Sanghamitra Saha

The first half of 2017 witnessed several key events. From Donald Trump taking chair as the U.S. President, to the Fed’s policy tightening, to developments in the oil patch or happenings across the U.S. border – each incident left a profound impact on the global investing world and asset classes. Below we will discuss how the ETF universe responded to these events so that investors have a fair idea of how the funds might behave going into the second half.

U.S. Large Cap Growth Stocks Leading Market

If small-caps were the stars in late 2016, large-caps ruled the first half of this year. Major U.S. indices hit highs in 1H. On January 26, 2016, the Dow hit the 20,000 mark for the first time in history buoyed by the Trump rally (read: What Does Dow's 20,000 Mean for These ETFs?).

Expectations of materialization of a corporate tax reform and fiscal reflation in the Trump administration paved the way for growth stocks. Moreover, PowerShares DB US Dollar Bullish ETF UUP was down 4.7%. Since large-cap stocks have greater exposure to foreign economies and therefore more susceptibility to negative currency translations, moderation in the U.S. dollar should bode well for the segment (read: 7 Large-Cap Growth ETFs That Are Sizzling).

SPDR S&P 500 Growth ETF SPYG (up 14.4%) has thus surpassed SPDR S&P 500 ETF SPY (up 9.6%) and SPDR S&P 500 Value ETF SPYV (up 4.3%) so far this year (as of June 22, 2017).

Trump Uncertainty

The Trump rally lost some steam in Q2 as political uncertainty surmounted. With controversies over the leakage of "highly classified information" to two top Russian officials by Trump, chances of his success in pushing through his pro-growth pledges are ebbing. His healthcare bill is also facing political gridlocks. Whenever uncertainty flared up, equities went into a tailspin and gave a boost to safe haven ETFs like SPDR Gold Shares GLD. The fund is up 8.5% so far this year (as of June 22, 2017) (read: Best ETF Strategies for Trump Uncertainty).

Tech Rally & Crash

Thanks to the improving technology sector, the tech heavy Nasdaq Composite Index inched past the huge milestone of 6,000 for the first time in late April. The rise of e-commerce and cloud services have created a sound operating backdrop and fundamentals for the tech sector.  However, the stupendous rally made the space guilty of overvaluation, causing a crash in June. Some of the top-performing tech ETFs are ARK Web x.0 ETF ARKW, PowerShares NASDAQ Internet ETF PNQI and First Trust NASDAQ-100-Tech Sector ETF QTEC which have added about 44.9%, 27.6% and 23.3% in the year-to-date frame (as of June 22, 2017) (read: Is the Tech Rout Overstated? Buy 3 Stocks & ETFs on the Dip).

Eurozone Back with a Bang

The Eurozone saw a strong start to the year thanks to economic improvement and upbeat corporate earnings. Also, receding political upheaval on favorable election results in France and the Netherlands augur well for the region. Some of the top-performing Europe ETFs in the year-to-date frame are Barclays ETN + FI Enhanced Europe 50 ETN FEEU (up 33.8%), iShares MSCI Germany Small-Cap ETF EWGS (up 27.9%) and Deutsche X-trackers MSCI Italy Hedged Equity ETF DBIT (up 25.2%) (read: What Makes These Europe ETFs Still Roaring).

Two Fed Rate Hikes

The Fed has enacted two rate hikes this year, one in March and the other in June. The Fed also indicated its plans of normalizing its $4.2-trillion balance sheet as soon as this year and gradually speeding up the process. Fed officials now plan one more rate hike this year (read: Surprise ETF Winners Post Fed Hike).

However, U.S. inflation remains subdued. Along with inflation concerns, a report that a probe against Donald Trump to see if he tried to manipulate election results, some downbeat economic readings and a steep slump in crude oil prices kept investors edgy.

As a result, yields of the benchmark 10-year U.S. Treasury dropped 30 bps to 2.15% on June 22 from the start of the year. The long-term U.S. Treasury ETF iShares 20+ Year Treasury Bond (TLT) has advanced 8.4% this year (as of June 22, 2017).

Oil Slips to Bear Market Despite Output Cut Extension

The world's two top oil producers agreed in May to prolong their ongoing output cut from the first half of 2017 to the end of the first quarter of 2018. Even this couldn’t salvage oil price as surging U.S. supplies outdid OPEC cuts.

Oil dropped more than 20% in mid-June from its recent high, indicating a bear market and marking “the biggest first half slide for Brent since 1997.” Lower Chinese refinery activity also led to this catastrophe. United States Brent Oil BNO haslost about 23% so far this year (as of June 22, 2017) whileUnited States Oil (USOUSO) is down about 25.1% (read: 5 ETFs to Buy as Crude Crashes on Inventory Built).

A-Shares to Be Added to MSCI EM Index

After years of denials, MSCI MSCI finally announced in mid-June that it will add China A shares in the MSCI Emerging Markets Index and the MSCI ACWI Index, beginning June 2018. This move will likely let mainland China's stock market to see capital inflows of about $17 billion or more, as per an MSCI executive. Notably, A-Shares ETF KraneShares Bosera MSCI China A ETF KBA is up 11% so far this year (as of June 22, 2017) (read: What Does the MSCI Inclusion Mean for China A Shares and ETFs?).

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SPDR-GOLD TRUST (GLD): ETF Research Reports
SPDR-SP 500 TR (SPY): ETF Research Reports
PWRSH-DB US$ BU (UUP): ETF Research Reports
US-OIL FUND LP (USO): ETF Research Reports
US BRENT OIL FD (BNO): ETF Research Reports
PWRSH-ND INTRNT (PNQI): ETF Research Reports
ARK- WEB XO ETF (ARKW): ETF Research Reports
SPDR-SP5 VL (SPYV): ETF Research Reports
FIRST N-100 TEC (QTEC): ETF Research Reports
ISHARS-MS GRMSC (EWGS): ETF Research Reports
SPDR-SP5 GR (SPYG): ETF Research Reports
FI ENHNC EU 50 (FEEU): ETF Research Reports
KRANS-BOS CHINA (KBA): ETF Research Reports
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