Exchange-traded fund (ETF) investing is still more popular than ever, with record-breaking levels of cashing pouring into these investments.
In March, assets of ETFs and ETPs (exchange-traded products) in the United States reached a new record high of $1.73 trillion. In the first quarter of 2014 alone, ETFs/ETPs in the United States gathered net inflows of $15 billion, with 1,568 ETFs/ETPs listed from 57 providers on three exchanges.
Driving ETFs' popularity as an investment tool is lower management fees, tax, and structuring advantages when compared to other investment vehicles like mutual funds.
Because of the wealth of advantages that ETFs provide, our experts recently offered insight into three different options for ETF investing - and each pick has unique upside given current economic conditions.
ETF Investing Pick No. 1: Going Big on Alibaba
For the last few months, we've spent a lot of time talking about the blockbuster potential of Alibaba's initial public offering (IPO). Alibaba is the largest e-commerce company in China, and its revenues dwarf many of the top U.S. technology companies... combined.
Yesterday (Tuesday), Alibaba finally filed. The document officially lists the IPO as a $1 billion deal, but that number is just a placeholder. Most analysts expect Alibaba to raise more than $15 billion through the IPO, and some optimistic views have that number closer to $20 billion. Either way, the Alibaba IPO will be the biggest U.S. IPO since Facebook Inc.'s (Nasdaq: FB) $16 billion deal in 2012.
And that's not the only big news.
Alibaba is soaring. The company just reported a 305% increase in revenues year over year - and Money Morning Chief Investment Strategist Keith Fitz-Gerald thinks it still has a lot of room to grow. In fact, he told FOX Business on Tuesday that the company could potentially buy Yahoo! Inc. (Nasdaq: YHOO) not long after this IPO happens.
"I know this sounds outrageous, but, you know what, if I were Alibaba I'd be thinking the same thing," Fitz-Gerald said. "They are going to be flush with cash, and they want access to the U.S. market."
So, how can you get a piece of this IPO, without having to pay an inflated price when it begins trading?
The answer is the KraneShares Trust ETF (Nasdaq: KWEB).
KWEB tracks the top Internet stocks in China. Because Alibaba is not yet a public company, the ETF does not include this company's performance.
But when the time comes, Alibaba is exactly the type of Internet stock that this ETF typically holds.
Lock into KWEB now before it adds Alibaba to rake in the profit bump when Alibaba makes its debut.
ETF Investing Pick No. 2: This Semiconductor ETF Is White Hot
The semiconductor sector is soaring right now, and for good reason. These tech components are critical in the manufacturing and operation of smartphones, tablets, satellites, TVs, and wearable technology.
Worldwide chip sales reached $26.28 billion in January, an 8.8% increase year over year. And that growth isn't going to slow down. Research firm Research and Markets forecasts an additional 4.4% in growth through the rest of 2014.
Money Morning Defense & Tech Specialist Michael Robinson recommended SPDR S&P Semiconductor ETF (NYSE Arca: XSD) as a great way to tap into the semiconductor sector boom.
"XSD offers both the upside that comes with the semiconductor boom and the stability that stems from owning a well-run ETF," Robinson said in April.
Holding some four dozen stocks, it's an exchange-traded fund that touches a wide swath of the semiconductor industry. XSD includes the most profitable companies in the semiconductor business today: Texas Instruments Inc. (Nasdaq: TXN), Apple Inc. (Nasdaq: AAPL), and Intel Corp. (Nasdaq: INTC).
It also features a number of smaller firms on the cutting edge of next-generation technologies, including First Solar Inc. (Nasdaq: FSLR), Micron Technology Inc. (Nasdaq: MU), and Freescale Semiconductor Ltd. (NYSE: FSL).
And at around $66 per share, Robinson believes XSD is a value buy that allows owners to get in on the massive growth in the tech industry at a remarkably affordable price.
ETF Investing Pick No. 3: A Wind Energy ETF That Soars
Finally, we've discussed the immense boom in alternative energy stocks over the last 18 months, and the immense boost in profits from the U.S. oil and gas sectors.
Wind power represents 4.1% of electricity generation in the United States - but that's just a fraction of the sector's potential. The AWEA reports that the U.S. land and offshore wind energy potential could provide 13 times that level of electricity. What's been hindering the sector's potential is dependency on taxpayer support.
"Can an energy source be considered sufficiently profitable to justify broader investment if its break even operations are dependent upon taxpayer support?" Money Morning Global Energy Strategist Dr. Kent Moors asked last month.
Dr. Moors believes that Denmark-based Vestas Wind (OTCMKTS ADR: VWDRY) is benefiting from industry changes that wean it from taxpayer support. VWDRY shares have soared by 389.18% in just a year, signifying its success with market proof.
It's just a matter of time before the rest of the sector catches up, creating untold profits for investors.
The best way to capture the coming growth is with a diversified ETF investing strategy through First Trust Global Wind Energy ETF (NYSE Arca: FAN). FAN owns a portfolio of equities that provide goods and services to the worldwide wind energy industry.
FAN stock gained 52.89% over the last year and is up 9.52% in 2014. Shares traded at $12.43 on May 7.
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About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.