2013 was a phenomenal year for stock investing, as the S&P 500 added more than 30% in the time frame. This came after a flat 2012, and the great performance was had despite worries over the taper and still muted economic growth.
It was also a great year for the ETF world as well, as close to 100 (net) new products hit the market, and assets under management crossed the $1.5 trillion mark. Now there are more than 1,500 choices out there, giving investors a near paralyzing amount of ways to slice and dice exposure to hundreds of market niches.
A few of these stand out though, as potential top performers for the New Year. Below, we highlight seven of our best ETF ideas for 2014, any of which we are looking for outperformance from over the next 12 months:
SPDR S&P Regional Banking ETF (KRE - ETF report)
As the Fed continues to taper, longer term rates look likely to creep higher. However, short term rates are holding pretty firm, creating a bigger interest rate spread between long and short term rates (see all the Top Ranked ETFs here).
This is great news for companies like regional banks which focus on ‘basic’ banking activities like lending. After all, these banks borrow money from depositors at low short term rates, and give loans at the higher rates, making it that much easier for these firms to make money.
While there are a number of ways to play this, KRE seems like a fantastic option. The fund holds 80 stocks in its basket, and it currently has a Zacks ETF Rank #1 (strong buy), suggesting that 2014 could bring good things to this fund much like what we have seen in the past few months.
db X-trackers MSCI Germany Hedged Equity Fund (DBGR - ETF report)
Europe is coming back in a big way, and this trend could continue in 2014 as well. However, if the dollar strengthens, euro-denominated investors could lag, meaning that a hedged play could be the way to go.
Investors can do this by targeting Europe’s strongest economy, Germany, with DBGR. This fund offers up great exposure to the central European economy, but does so without the euro, making it likely to outperform more traditional German ETFs if the euro falters in 2014.
DBGR also has a Zacks ETF Rank #1 (Strong Buy).
PowerShares S&P SmallCap Health Care Portfolio (PSCH - ETF report)
2013 was a great year for health care, and particularly so in the biotech space. However, for 2014, pipelines for many of the majors might be a little light, and they could be looking to small caps in the space to help boost their long term outlooks (read Play Surging Health Care with These Small Cap ETFs).
And with the huge cash war chests that many companies have, M&A activity could pick up this year, as there is only so many buybacks companies can justify. While looking at specific small caps is an interesting idea, you can spread the risk around with PSCH in order to play off this trend a little more safely.
PSCH has a Zacks ETF Rank #3 (Hold).
iShares MSCI Mexico Capped ETF (EWW - ETF report)
Concerns are starting to build over a variety of emerging markets thanks to a number of political issues. Fortunately, for nations tied to developed markets, the resurgence in both the U.S. and Europe could pull their heavily-correlated economies higher.
One such economy that fits this bill is Mexico with EWW. The country could be poised to surge in 2014, and given some economic liberalization—specifically with regards to the country’s plans for its state oil company—the Mexico ETF could be an excellent pick.
EWW currently has a Zacks ETF Rank #3 (Hold).
EG Shares Emerging Markets Consumer Titans ETF (ECON - ETF report)
If individual countries aren’t your preference for emerging markets, a look to the consumer world may also be an interesting selection. After all, emerging nations are seeing huge gains in their consuming class, and companies on the ground floor stand to benefit from this trend (also see Inside the New Emerging Markets Consumer Growth ETF).
Plus, many companies in ECON are not found in other emerging market ETFs, suggesting a level of diversification too. And with a heavy focus on large cap staples, the volatility level shouldn’t be too bad for most investors.
Global X Guru Index ETF (GURU - ETF report)
Want to invest like some of the biggest and most powerful institutional investors? Try out this fund from Global X which invests in securities based on publically released 13-F filings. This is clearly a winning strategy, as the fund soared by more than 43% in 2013, and if markets continue to march higher, there is plenty of reason to believe that this trend can continue, making GURU an excellent pick.
After all, GURU only focuses on longer-term holdings and funds with lower turnover, targeting only the highest conviction stock picks based on a proprietary selection process, suggesting this fund could be a winner again in 2014.
Vanguard Mega Cap Value ETF (MGV - ETF report)
Small caps easily crushed large caps for the first half of 2013. The last few months saw a bit of a shift though, with large caps starting to take the lead once again. I think that this trend will continue once again, especially given the high PEs of many small cap securities (save for those likely to be impacted by M&A activity).
Fortunately, investors can focus on the biggest of the big with MGV, which only holds about 150 ultra-large cap value stocks. And with a fee of 12 basis points, this is a pretty cheap choice for investors seeking a concentrated look on some of the country’s most famous value companies (read Mega Cap ETFs for Mega Returns).
MGV currently has a Zacks ETF Rank #3 (Hold)
2013 was a great year for stocks and many are still bullish on the markets heading into 2014. However, after the huge run we saw last year, investors may have to be a bit more nimble this time around.
For investors seeking to do this, any of the seven picks above may be great ways to accomplish this task. And for all the top ranked ETFs, make sure to check out our full list here for more ideas on investing this year.
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Author is long ECON.