These Five ETFs Turn the Market's Best Growth into Your Biggest Gains

The most effective way to make money in the stock market is much simpler than Wall Street would have you believe: Identify the growth trends and ride them up.

ETFs

Picking individual stocks and getting in and out at just the right time is a great strategy to put money in brokers' pockets. Or you can pay a fund manager to do it for you.

But to really grow your wealth and take emotion out of the equation, it's time to give exchange-traded funds (ETFs) a serious look.

You might think ETFs spread your money too thin and leave you with only modest growth while more savvy investors enjoy mega-profits.

But look at iShares MSCI India Small Cap ETF (BATS: SMIN), which gained 58% in 2017, beating the S&P 500 by roughly 200%.

The right ETF can send your portfolio skyrocketing when you've identified a real growth trend.

So today, we've got five growth trends that will dominate 2018, and five ETFs to take advantage of each of them. Each ETF provides the stability you need with the breakout potential you want.

Growth Trend No. 1: The Rise of Index Funds

One of the big reasons for the stock market's success in 2017 was all the money going into index funds.

According to Morningstar Inc., in the 12-month period ending last October, investors had taken $218 billion out of actively managed funds and put $273 billion into passive index funds.

That makes sense: passive funds charge significantly less in fees, and the majority of mutual funds don't consistently outperform the major indexes anyway.

In fact, Warren Buffett once bet $500,000 that an S&P 500 index fund would outperform any professionally selected basket of hedge funds over a 10-year period. He won, and it wasn't close.

The inflows into index funds create a feedback loop: The indexes rise in response to those inflows, making index funds even more attractive.

All stocks benefit from this trend, but small-cap stocks in particular have the most to gain.

Some of those stocks might be flying under the radar in a different environment. But the rising tide of index fund investing lifts all boats - even the smaller ones.

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That's why the iShares Russell 2000 Growth ETF (NYSE Arca: IWO) is the best ETF to capitalize on the index fund trend.

You probably know that the Russell 2000 is the go-to index for small-cap stocks. This index fund tracks a subset of stocks in the Russell 2000 that display growth characteristics, particularly higher-than-average forecasted growth.

IWO outperformed the Russell 2000 by more than 60% in 2017.

Even with a jittery market at the moment, rising wages and tax cuts should send more money into index funds over the course of the year. IWO is set to be one of the biggest beneficiaries.

According to Money Morning Capital Wave Strategist Shah Gilani, this pick could "revolutionize your portfolio."

Growth Trend No. 2: Global Market Frontiers

China has been the major growth story of the past decade. The world's second-largest economy is still growing 6.6% a year, compared to 2.3% for the largest (United States) and 1.2% for the third largest (Japan).

Top Chinese tech companies are now in the same league as the American "Fab Five," with multiple Chinese stocks (including Alibaba) achieving market caps of $400 billion in 2017.

ETFs

Last year, Wall Street fretted over China's economic fate in the face of U.S. President Donald Trump's tough talk about tariffs and trade wars. But even should the United States cut down on trade with China, it wouldn't have any effect on China's biggest economic driver: e-commerce and other Internet services.

Yearly growth in Chinese Internet users is around 6%. That's impressive in any country, but it's much more impressive when you consider that, in China, that means over 40 million new Internet users every year. That's more than the entire population of Canada or Australia.

This is why we can expect continuing growth in Internet-based Chinese companies like Alibaba Group Holdings Ltd. (NYSE: BABA), Momo Inc. (Nasdaq: MOMO), and Bitauto Holding Ltd. (NYSE: BITA).

As it happens, there's one ETF that holds all of these and more...

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The Emerging Markets Internet & E-Commerce ETF (NYSE Arca: EMQQ) holds companies that derive at least half of their revenue from emerging markets and frontier economies. That includes not only Chinese juggernauts, but companies in fast-growing markets such as MercadoLibre Inc. (Nasdaq: MELI) in Argentina, Naspers Ltd. (OTCMKTS: NPSND) in South Africa, and MakeMyTrip Inc. (Nasdaq: MMYT).

"Make no mistake," says Money Morning Director of Technology & Venture Capital Research Michael Robinson, "the emerging and frontier markets this ETF targets are set for explosive - or better - growth."

In 2010, consumption in emerging markets was less than half that of the developed world. By 2025, according to McKinsey Global Institute, that figure will grow to 88%.

Even as the developed world grows at a healthy pace, you don't want to miss the gains on the way as emerging markets increase consumption from $12 trillion to $30 trillion over a 15-year period. Just as China has been the story over the last decade, emerging markets as a whole will be the story of the next one.

EMQQ is your chance to be a part of that story.

Growth Trend No. 3: The Rise of the Machines

The robot invasion is no longer a sci-fi fantasy. It's here today, and it's incredibly profitable.

Automation is rapidly finding its way into every nook and cranny of the business world, with positive results. A May 2017 article in Recode found that companies that have heavily automated their business processes were twice as likely to exceed their internal financial goals compared to companies that haven't invested much in automation.

As businesses incorporate automation technology into their supply chains, they become both more efficient and more productive, forcing competitors to follow suit. That's why robotics and automation is a sector positioned for exponential growth.

And one ETF, Robo-Stox Global Robotics & Automation ETF (Nasdaq: ROBO), is your entry point.

ROBO, which trades around $42 right now, has holdings in 80 companies that are on the cutting edge of automation and robotics. That includes...

  • Deere & Co. (NYSE: DE), which has spent the last two decades positioning itself as a leader in autonomous vehicles. Its tractors now not only drive themselves, but can adjust to soil conditions and target weeds efficiently.
  • Fanuc Corp.(OTCMKTS: FANUY), whose signature yellow robots have almost certainly helped build at least one product you own. Joshua Hunt of Bloomberg said Fanuc might be "the single most important manufacturing company in the world right now."
  • Daifuku Co. Ltd. (OTCMKTS: DAIUF), which creates automated factory solutions for a variety of businesses, including robotic baggage claim systems in airports on four continents.
  • Rockwell Automation Inc. (NYSE: ROK), which specializes in industrial automation and offers businesses the capability of monitoring every aspect of production from handheld smart devices - cutting down on defects and boosting productivity.
  • Nvidia Corp. (Nasdaq: NVDA), one of the leading developers of artificial intelligence for autonomous vehicles. Partners include Toyota Motor Corp. Ltd. (NYSE: TM), Mercedes-Benz, and Tesla.

"I believe this is an ETF that offers patient tech investors some excellent long-term potential," Michael said in September, "and would make a great foundational play for your portfolio."

As it turns out, ROBO is rewarding not-so-patient tech investors, too. The ETF is up 20% since Michael made that call, compared to 9.3% for the S&P 500. That alone shows that the rise of the machines is already in full force.

Growth Trend No. 4: Cybersecurity

While technology boosts efficiency and productivity (not to mention just being cool), it does come with inherent risks.

The "Meltdown" and "Spectre" bugs, the Equifax hack, and the ongoing saga of international cybercrime are reminders that our digital lives are prone to attacks.

Research firm Cybersecurity Ventures has forecasted that cybercrime damages will total $6 trillion annually by 2021, compared to half that much in 2015.

As unsettling that is, there is an industry dedicated to combatting this type of crime, and MarketsandMarkets projects that it will be worth $231.9 billion by 2022, up 68% from $137.8 billion last year.

To get in on that growth, there's ETFMG Prime Cybersecurity ETF (NYSE Arca: HACK).

One of the great features of ETFs is that they can give you a healthy mix of large, well-established companies and young startups that are ready to take off. Piling your money into just one of these companies could either limit your potential gains or pose too great a speculative risk.

HACK gives you the best of both worlds.

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The 44 companies in this ETF include big names you've already heard of, such as Cisco Systems Inc. (Nasdaq: CSCO) and Symantec Corp. (Nasdaq: SYMC).

But it also includes smaller companies with breakout potential, such as...

  • Splunk Inc. (Nasdaq: SPLK), a San Francisco-based company that specializes in protecting machine-generated data - making it a play not only in cybersecurity but on the rise of Big Data. Splunk was founded in 2003 and has rapidly grown to more than $1 billion in annual revenue and a $12.5 billion market cap.
  • Qualys Inc. (Nasdaq: QLYS), which runs a cloud-based security platform that integrates with all of the major cloud providers. The platform provides an unblinking assessment of a network's security, with two-second global visibility and a minimal footprint.
  • FireEye Inc. (Nasdaq: FEYE), which has led investigations into attacks on Target, JP Morgan Chase & Co., Sony Pictures, and Anthem. According to Deloitte, it is the fastest-growing firm in cyber security. FireEye's earnings are forecasted to grow 400% over the next two years.

HACK gives you a way to protect yourself and profit as this industry becomes more critical around the globe.

"HACK gives us a great diversified play on a very hot trend," Michael says, "that should continue to crush the overall market for years to come."

Growth Trend No. 5: Young Breakouts

IPOs can be thrilling. Imagine getting in on Amazon.com Inc. (Nasdaq: AMZN) in 1997 for $15 (worth over $22,500 today after stock splits), or Alphabet Inc. (Nasdaq: GOOGL) in 2004 for $85 (over $2,500 today).

Even grabbing a piece of Alibaba Group Holding Ltd. (NYSE: BABA) after its IPO in 2014 (as Money Morning Chief Investment Strategist Keith Fitz-Gerald recommended) would have netted you nearly a 90% gain by now.

Of course, IPOs are also risky. For every Alibaba, there's a Shanda Games (now private) or a Snap Inc. (NYSE: SNAP) that's a major disappointment.

That's why we like First Trust U.S. Equity Opportunities ETF (NYSE Arca: FPX).

"Consider it a 'secret passageway' to the tech sector's biggest profit machine," says Michael.

This ETF includes roughly 100 holdings, including some of the biggest companies to go public in the last few years - such as Arista Networks Inc. (NYSE: ANET), Match Group Inc. (Nasdaq: MTCH), and Coupa Software Inc. (Nasdaq: COUP).

ETFs

Because most of the stocks in FPX only make up about 1% each of the portfolio, no one stock is going to sink the fund. And First Trust balances out those young startups with some reliable big names like Hewlett Packard Enterprise Co. (NYSE: HPE), Tyson Foods Inc. (NYSE: TSN), and the Kraft Heinz Co. (Nasdaq: KHC), which provide an extra layer of protection.

The principle in play here is that it's foolish to invest in IPOs and then drop them once they're no longer new. So FPX holds on to select stocks for the long haul. That way the fund doesn't get burned by selling stocks before the initial volatility has settled down.

"With a healthy mix of new and stable holdings, FPX is the best way to profit from IPOs," Michael says. It gives you access to some of the most exciting companies going public (like, say, Spotify, or cloud storage firm Dropbox Inc.) "without the risk and volatility of buying in on day one."

While You Sleep, He Executes Night Trades...

Last Wednesday, the Night Trader infiltrated the markets at 9:30 p.m. The next time he checked his account on Friday, his entire portfolio went up 83%.

He then spent the weekend at a five-star hotel. And on Monday, saw an additional 102% total gains in his account.

That's 185% total gains in two trading days (all without using a single option).

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About the Author

Stephen Mack has been writing about economics and finance since 2011. He contributed material for the best-selling books Aftershock and The Aftershock Investor. He lives in Baltimore, Maryland.

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