Investors may want to look abroad when considering the best plays heading into the new year.
International ETFs have thrived in the second half of the year. Exchange traded funds that track Brazil, Japan and Latin America have been the top performing nonleveraged ETFs since the start of the third quarter.
The WisdomTree Japan Hedged ETF, the DXJ, has gained 16 percent since July 1 following big outflows in the beginning of the year as the yen has weakened.
The iShares MSCI Brazil ETF, the EWZ, is up just over 27 percent since the start of the third quarter. Brazilian equities have soared this year following former President Dilma Rousseff's impeachment in August; the Brazilian Bovespa stock exchange hit a four-year high last week. The broader iShares Latin America ETF, the ILF, is up 20 percent in the same period.
And European stocks, particularly in Germany and France, could also see substantial growth in the months ahead, according to Boris Schlossberg, managing director of foreign exchange strategy for BK Asset Management. He calls European stocks "the trade for 2017."
"I think you're probably going to see much better performance out of Europe than you will out of the U.S., primarily because of the stronger dollar," Schlossberg said Monday on CNBC's "Trading Nation."
These countries' exchange rates have depreciated, Schlossberg added, improving the outlook for European exporters.
While European ETFs may not have outperformed some of the funds tracking Latin American markets, Schlossberg said, trading European funds against the U.S. could be successful going into 2017. He cited a trade like getting long the German DAX index and short the Dow.
From a technical standpoint, Japan may see a breakout on the horizon, according to Matt Maley, managing director and equity strategist at Miller Tabak.
"The euro's been weak, the yen has been weak — that's going to make them more competitive, and some multinational companies in these individual countries should do quite well," Maley said Monday on "Trading Nation."
The Japanese Nikkei 225 index made a bullish double bottom this year, Maley noted, and may be able to break through a key resistance level of 18,000.
"And the same thing with the Euro STOXX index," Maley added. "That made a double bottom, and it's the same type of thing; it hasn't rallied quite as much, but the potential is certainly there."
While the Japanese DXJ ETF has rallied in the second half, September marked the fifth consecutive month in which foreign investors sold Japanese equities. But a weakening yen and weekly data that show foreign investors have been net buyers of Japanese shares for four consecutive weeks suggests this sell-off could be ending, according to a note published Monday by Brown Brothers Harriman entitled, "Are Foreign Investors Done Selling Japanese Equities?"
The Nikkei, too, gained in four of the last week's five sessions, according to the note, mimicking the previous week's performance.