ETF Watchlist: Week of January 15, 2018

Perhaps the hottest word in the tech sector right now is “blockchain”. Blockchain, a sort of digital ledger for cryptocurrency transactions, is most commonly associated with bitcoin, but could have an immense number of other technology applications. The potential of blockchain is enough that some companies are transforming their businesses to get in on the trend.

Take Long Island Iced Tea, for example. The beverage maker decided to make a complete strategic pivot by deciding to focus instead on opportunities in blockchain technology. The new company, Long Blockchain (LBCC), saw its stock rise around 250% on the news. Or look at the case of Bioptix. The biotech company changed its focus and became Riot Blockchain (RIOT). The stock rose from the single digits to nearly $40. Or Kodak. The 129-year old film business decided to launch KodakCoin, pushing the stock price from $3 to more than $12.

The running joke is that companies only need to add the word “blockchain” to their name in order to triple their value, but the SEC is not as impressed. Two new ETFs are set to launch this week - the Amplify Blockchain Leaders ETF (BLOK) and the Reality Shares Nasdaq Blockchain Economy ETF (BLCN). As was the case with bitcoin ETFs, the SEC has shown little tolerance for excessively volatile products that could harm investors. Supposedly, the SEC has asked the two funds to remove the “Blockchain” from their names. Could it be a way of stemming off the flood of money potentially moving into these products? Maybe. The ETFMG Alternative Harvest ETF (MJX) doesn’t seem to have trouble attracting assets despite not having the word “marijuana” in the name. The funds could still launch this week, but expect the SEC to continue taking a hard line stance against risky assets.

Here are your four ETFs to keep an eye on this week!

iShares 1-3 Year Treasury Bond ETF (SHY)

Rates on short-term Treasury notes are at their highest levels in nearly a decade, and the rise is probably not be done.

With the Fed on pace to raise rates another three times, give or take, in 2018, 3-year Treasuries could hit the 3% mark by the end of the year. Short-term Treasury ETFs haven’t done shareholders any favors over the last several months. This one is down nearly 1% since September and could be an area of the market to stay away from in 2018.

Others: Schwab Short-Term U.S. Treasury ETF (SCHO), iShares 3-7 Year Treasury Bond ETF (IEI), Vanguard Short-Term Government Bond ETF (VGSH)

Franklin FTSE Europe ETF (FLEE)

Franklin Templeton made a bold move into the ETF fee war last November when it launched 16 country and region focused funds that immediately became among the cheapest in the industry. The Europe ETF is the cheapest in its segment edging out Vanguard’s products by a single basis point. In two months, it’s accumulated more than $110 million in assets, making it one of the more successful launches in recent memory. Despite the fact that it’s still much smaller than many of its big name counterparts, this fund should be considered if you’re looking to add Europe exposure to your portfolio. The 0.09% expense ratio alone warrants it.

Others: Franklin FTSE Europe Hedged ETF (FLEH), Franklin FTSE France ETF (FLFR), Franklin FTSE United Kingdom ETF (FLGB)

Vanguard Telecommunications Services ETF (VOX)

The telecommunications is often lost in the shuffle as other more popular sectors, such as tech and healthcare, take the lead. Look at the telecommunications ETF space and there really isn’t much there, about $2 billion in total assets spread across just five funds. That could be about to change in a big way.

Not long ago, the S&P Dow Jones Indices and MSCI announced they were going to make changes to some of their indexes. That, in and of itself, is not unusual, but this week we found out who is moving into the telecom sector (which is being renamed the communication services sector). Going into the sector include Google (GOOG), Facebook (FB), Disney (DIS) and Netflix (NFLX) among others. Those names along would comprise over 50% of the newly structured sector. Watch out for a lot of activity in this area, including the likely launch of a few new funds.

Others: iShares Global Telecom ETF (IXP), iShares U.S. Telecommunications ETF (IYZ), SPDR S&P Telecom ETF (XTL)

iShares Select Dividend ETF (DVY)

This fund is one of the biggest dividend ETFs in the marketplace, with assets north of $18 billion. It’s popular for its 3% dividend yield, but it’s looking like less than an ideal pick right now. More than 26% of the portfolio is invested in utilities, an interest rate sensitive sector that will likely underperform as rates rise. Higher yield equities were popular when interest rates were near zero, but now that rates are back on the rise, those dividend yields become less attractive. The Select Dividend ETF has been a great long-term performer for shareholders, but it may not be ideally positioned for the current environment.

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