The 4 Most Important ETFs to Watch in 2016

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

It is the first day of 2016, and I want to first start out by offering you best wishes for a happy, healthy and wealthy new year.

As we jump out of the 2016 starting gate, the global economy, as well as financial markets, face several big headwinds. The good news is that these headwinds are pretty easy to identify. The bad news is that they need to die down markedly if we are going to see a material improvement in the world’s economy, and in both international and domestic equities.

Let’s take a quick look at what I think are the four most important exchange-traded funds (ETFs) to watch in 2016, as each will give us a sense as to whether these key sectors are improving.

First, the commodity plunge of 2015 needs to bottom out and move higher if we are to see an improvement in global growth. The benchmark ETF to watch here is the DB Commodities Tracking Index Fund (DBC).

Commodities tracker DbC

The energy-sector-dominant DBC has been slammed this year because of plunging oil prices, but a decline in copper due to economic slowdowns in emerging markets and China, plus a drop in gold prices resulting from strength in the U.S. dollar, also have contributed to the horrendous year in the commodity space.

That leads us to the declines in emerging markets and Chinese stocks as represented here by the iShares MSCI Emerging Markets ETF (EEM) and the iShares FTSE China 25 Index (FXI).

Emerging Markets EEM

FTSE China 25 FXI

As you can see by the charts of both EEM and FXI, it has been a horrible year for each respective segment. If economies in the emerging markets and China can stabilize, that would be a huge plus for the global economy. It also would help drive up oil and copper prices, which in turn would give DBC some escape velocity from its current doldrums.

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Finally, the action in the U.S. markets in 2016 will be heavily influenced by events in the global economy. It is an interconnected world, so if we see commodity prices stabilize along with emerging markets and China, that combination almost certainly will help stocks here at home.

S&P 500 SPY

The best way to monitor the action in U.S. markets is via the benchmark SPDR S&P 500 ETF (SPY). This is the fund pegged to its namesake index, and it’s about the best way to assess what’s taking place in the domestic equity market.

In 2015, SPY basically was flat. The question now is: will it be flat in 2016? The answer could be contained in the aforementioned commodity, emerging markets and China sectors, and that’s why their respective ETFs, along with SPY, are so vital to monitor in 2016.

Of course, these indicators will tell us the big picture of what’s likely to happen in the global economy and international and domestic stocks on a broad basis. Yet, when it comes to investing, broad isn’t necessarily the best route.

As we enter 2016, subscribers to my Successful ETF Investing newsletter are already profiting from targeted investments in sector-specific ETFs outpacing the broad market.

In fact, we are about to add another market-beating sector to our portfolio, which will be featured in our next monthly issue. If you’d like to start enhancing your returns in 2016, then I invite you to check out my service today — and just in time for the latest portfolio addition.

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The Powell Doctrine

“Perpetual optimism is a force multiplier.”

–Gen. Colin Powell

As we enter 2016, I think it’s important to be optimistic about stocks, the economy and being successful in the year to come. In fact, being optimistic on a regular basis can be infectious, or as Gen. Colin Powell says, it can be a “force multiplier” when it comes to accomplishing important goals.

Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my audio podcast, newsletters, seminars or anything else. Ask Doug.

In case you missed it, I encourage you to read my e-letter column from last week about the best investment presents to give yourself. I also invite you to comment in the space provided below my Eagle Daily Investor commentary.

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