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The 3 Best Sector ETFs to Buy for a Profitable 2017

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Sector exchange-traded funds can cut both ways for an investor. For those who own a long-term diversified portfolio, such as the kind I'll be building in my forthcoming stock advisory newsletter, The Liberty Portfolio , sector ETFs generally don't play much of a role. The concentration of a specific sector plays against the diversification strategy.

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However, if your portfolio is more loosey-goosey, and you have an instinct for where the economy is going, how people behave in that economy and an eye for how events drive sector flow, then investing by sector as a part of your overall strategy can make some sense.

The best sectors to invest in for 2017 are fairly straightforward, but there are some wrinkles thanks to a generally overvalued market and a seemingly pro-business, low-tax philosophy of the new president.

Best Sector ETFs to Buy: Dow Jones U.S. Industrials (IYJ)

Best Sector ETFs to Buy: Dow Jones U.S. Industrials (IYJ)

Sector: Industrials

Expenses: 0.44%

12-Month Yield: 1.4%

One sector to seriously consider for 2017 is industrials. I think iShares Dow Jones U.S. Industrials (ETF) (NYSE: IYJ ) is the way to go here.

A new President often generates talk of infrastructure spending, and this administration is no different. First, Congress already has large budgets set for the coming year. President Obama signed a five-year $305 billion highway bill in late 2015, which will bump spending by $61 billion this year, and 28 states also are plowing increasing money into infrastructure. The U.S. Bureau of Economic Analysis shows a total spend of more than $160 billion per year on highways.

Aerospace and defense do fall into this IYJ ETF category. Despite the president's buzz over killing the F-35 jet, there's no doubt that he is hawkish and will defend American interests … and that may mean killing the sequester. Thus, if defense spending increases, materials as a sector should benefit.

A key thing to know about industrials (and the IYJ) is that, based on the present place in the economic cycle, consumers move to replacement over new purchases, so parts manufacturers will benefit.

Best Sector ETFs to Buy: Financial SPDR (XLF)

Best Sector ETFs to Buy: Financial SPDR (XLF)

Sector: Financials

Expenses: 0.14%

12-Month Yield: 1.7%

There is no question in my mind that financials, as a sector, is the place to be in 2017. The Financial Select Sector SPDR Fund (NYSE: XLF ) is a good, safe choice here.

Not only will the President be likely to significantly slash regulations in this sector, but this is probably the most important sector experiencing a form of disruption. Technology is playing a massive role in how financial services are being utilized.

Everything is moving online, and fintech companies are the new sizzling way that stodgy old financial institutions can keep up - hence the XLF.

It's an exciting time because technology and data is so sophisticated that insurance companies will be forever more successful with their risk management, which should improve performance.

Banks that offer the easiest and simplest interfaces with customers will thrive. Converting from a face-to-face model to internet only will be challenging and that means lots of M&A, especially for start-ups.

Best Sector ETFs to Buy: Wilshire US REIT (WREI)

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Sector: Real Estate

Expenses: 0.32%

12-Month Yield: 2.9%

Finally, I would consider real estate as a sector, but not for the reasons one might think. Yes, real estate is always a good long-term play. Yet, I'm actually going with the theme that as more and more retailers and other businesses are forced to move online, it will require a lot more warehouse space. They have to compete with Amazon.com, Inc. (NASDAQ: AMZN ) after all!

There are many good choices here, but consider the Wilshire US REIT ETF (NYSE: WREI ). The WREI ETF invests a minimum of 80% of its total assets in stocks, 115 to be exact, and has an expense ratio of 0.32%. That's pretty middle of the road as far as this list goes, but WREI's yield of just under 3% makes up for it.

What's more, Fidelity Investments had an interesting report on the sector, suggesting that:

"During the past year, absorption of modern warehouse logistics space exceeded new construction, whether it was built speculatively or to meet the needs of a new or existing tenant (known as "built-to-suit")."

That means more construction will be needed, which means REITs like WREI should be big winners. We've seen this dynamic in the hotel industry over the past ten years, and it led to big gains in that sector.

Lawrence Meyers is the CEO of PDL Capital, and manager of the forthcoming Liberty Portfolio stock newsletter. As of this writing, has no position in any stock mentioned. He has 22 years' experience in the stock market, and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.

The post The 3 Best Sector ETFs to Buy for a Profitable 2017 appeared first on InvestorPlace .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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