As mentioned in recent posts, growth stocks tend to perform the best in a low yield curve environment. Now, just because most investors believe that “growth” is synonymous to “tech stocks” does not mean that we have to only invest in tech when interest rates are low. In fact, there are other high-growth industries and sectors we can invest in, such as biotech, emerging markets, and growing small cap stocks. According to recent trends, many institutional investors are making their moves into smaller cap stocks. Considering that FANG stocks, and large cap growth, have made their extraordinary run in the past several months, the Big Boys are looking to buy smaller issues with lower valuations. Emerging Markets in developing Europe, particularly in recovering Greece, has seen some large fund inflows, along with increased performance, in the past couple of months. And if you love risk, look into Chinese Internet companies or leveraged ETF’s for a good run on your money.
For those who do not know, the Direxion S&P Biotech Bull 3X ETF (LABU) outperformed the market, with a 31.74% return in the second quarter of 2017 and a 122.08% gain in the past year. Again, this is a tripled levered Exchange Traded Fund, which consists of all the top Biotech stock in the S&P 500. So, even though all the companies in the fund are within the same industry, the ETF is still somewhat diversified, nonetheless. Just think about it this way, the only way you are going to lose all your money in this ETF is if all the top S&P 500 Biotech companies go bankrupt, in the same day. What are the chances of this happening? Probably very slim … at least not in our lifetimes.
Currently, we have a lot of money in the Direxion CSI China Internet Bull 2X ETF (CWEB). This fund consists of all the top Chinese Internet companies, including Ali Baba (BABA), TenCent (TCEHY), JD.com (JD), Baidu.com (BIDU), and Ctrip.com (CTRP). All of these companies are experiencing explosive growth, along with the rising expansion in the Chinese economy. Seems like none of these Chinese Internet companies can be stopped nowadays. Just yesterday, Ali Baba announced an international deal with Marriott International (MAR), which would allow tourists to check into Marriott Hotels via the Ali Baba portal. Marriott beats Wall Street estimates with their aftermarket earnings report, and guess what? Marriott shares fell, while Ali Baba shares increased! Does not make any sense, but like I said…these Chinese Internet companies just seem unstoppable, for the time being.
We also have a lot of funds in the Innovator IBD 50 ETF (FFTY), which consists of mostly small and mid cap growth stocks in the Investor’s Business Daily 50 Index. The index includes a whole confluence of Internet companies (both American and Chinese), semiconductor manufacturers, biotech, and most of them are small to mid cap sized firms. As mentioned before, recent fund flows indicate that money is moving into smaller cap issues.
Also published on Medium.