By Salvatore Bruno via

International investments, event-driven opportunities and continued growth in ETF industry assets are all likely to make waves in 2018.

Here are IndexIQ’s top ETF-focused trends and insights.

1. Tax reform and other legislative priorities may provide fuel for U.S. equity performance

Tax reform can be a large positive factor and could propel both large cap and small cap stocks higher. A reduction in taxes paid on repatriated profits could entice offshore cash to return to the US. The reduction of the domestic tax rate would also benefit companies that generate most of their revenues domestically. While most equities would benefit, those that are well managed may be in the best position. Using a disciplined approach to identify these companies can potentially further improve returns.

2. The strong pace of M&A will continue, providing a way for investors to dampen portfolio volatility

Despite an uncertain political environment, the merger and acquisition market has remained resilient. With continued low interest rates, the possibility of a deal on foreign tax repatriation, and large cash reserves on corporate balance sheets, companies continue to look to the M&A market for deals. Over the last year we’ve seen more deals that can be thought of as transformational (e.g. Amazon/Whole Foods), where the combined entity is seeking to dramatically alter the competitive balance within an industry. These types of deals are likely to increase in frequency as deregulation changes the playing field and technology becomes ever more disruptive. Regardless of the type of deal, merger arbitrage investing is likely going to be an important tool in helping to dampen portfolio volatility.

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