These funds are bad news.
The exchange-traded fund industry just topped the $3 trillion asset mark thanks to a boffo July for inflows. In fact, more money has poured into ETFs through 2017’s first seven months than in all of 2016. However, as popular as ETFs have become — there are more than 2,000 trading on U.S. exchanges — not all of them are gems. In fact, just like you’d expect from any product group with thousands of options, a few of them are downright stinkers. Here are seven ETFs that you’re best off avoiding, ranging from the slightly misguided to straight-out bad ideas.
ProSports Sponsors ETF (ticker: FANZ)
The young FANZ, which debuted in July 2017, markets itself on the premise that big-league sports sponsorship — specifically, of America’s Big Four (MLB, NBA, NHL and NFL) — will equate to big-time returns. But while getting your name in front of massive audiences no doubt helps to some extent, the data linking sports sponsorship and corporate growth is thin and inconclusive at best. Worse, the SportsETFs provider page is woefully thin, and even the benchmark index’s page doesn’t list specific holdings, just sector weightings. FANZ, for the record, is overweight in consumer discretionary (36 percent), with significant holdings in consumer staples (17 percent), tech (15 percent) and financials (15 percent).
Expenses: 0.69 percent, or $69 per $10,000 invested annually
LocalShares Nashville Area ETF (NASH)
Civic pride is a wonderful thing, but investing in companies based on the city they’re in simply makes no sense. The NASH ETF invests in companies headquartered in the Nashville area, and the provider page touts the virtues and growth potential of Music City. But none of that really has any bearing on NASH’s holdings, which include the likes of Cracker Barrel Old Country Store (CBRL), Dollar General Corp. (DG) and Genesco (GCO), all of which derive most of their revenue outside Nashville.
Expenses: 0.49 percent
Amplify YieldShares Prime 5 Dividend ETF (PFV)
ETFs allow you to invest in large bundles of stocks for a cheap annual fee, saving you hundreds or thousands of dollars in trading expenses, while also simplifying the process. However, the PFV is a “fund of funds,” investing in a small clump of five ETFs selected via its own ranking methodology. Backing out a fee waiver, PFV charge 35 basis points annually to rotate in and out of what mostly are buy-and-hold funds. Choose a dividend ETF or two for yourself instead and save yourself the extra costs.
Expenses: 0.49 percent
The Obesity ETF (SLIM)
The premise of The Obesity ETF is actually right on the mark. Obesity is a global scourge, and rising costs related to obesity are adding increasing financial incentive to find a solution. However, SLIM’s portfolio of roughly 40 companies includes a number of companies that are in direct competition with one another — such as Arena Pharmaceuticals (ARNA) and Vivus (VVUS) — which is problematic in such a focused portfolio. Worse is a 20 percent-plus weight in Novo Nordisk A/S (NVO), which adds enormous single-stock risk. Funds like Global X’s more balanced Health & Wellness Thematic ETF (BFIT) make much more sense to play this broader trend.
Expenses: 0.5 percent
Global X S&P 500 Catholic Values ETF (CATH)
Global X’s CATH ETF invests in Standard & Poor’s 500 index companies whose businesses adhere to the socially responsible investment guidelines outlined by the U.S. Conference of Catholic Bishops. Essentially, these companies have the church’s seal of approval by promoting human dignity and protecting the environment among other things. However, that isn’t a particularly rigorous screen, as CATH still holds 93 percent of the S&P 500. CATH isn’t a bad fund, per se, but for such a tiny effect on investment, it seems advisable to simply hold your nose and save the basis points by purchasing a basic S&P 500 tracking fund instead.
Expenses: 0.29 percent
S&P 500 Ex-Technology ETF (SPXT)
Technology has been the driving force of 2017’s market gains and a major factor in this eight-year bull-market run. Stocks like Apple (AAPL) and Alphabet (GOOG, GOOGL) have run rampant as part of a broader trend of technology comprising a larger part of the U.S. economy and life in general. Thus, the SPXT — which invests in the market sans tech stocks like Apple and Alphabet, as well as telecom — seems like a bad bet in general. SPXT markets itself as a hedge against potential underperformance in tech, but if you’re already invested in a broad-market fund, this seems a mostly redundant option. Just short tech via an ETF instead.
Expenses: 0.27 percent
Direxion Daily Technology Bear 1x Shares (TECZ)
Direxion’s TECZ is a way to short the tech sector. This ETF provides 100 percent the inverse of the same index the Technology Select Sector SPDR Fund (XLK) tracks, putting you short Apple, Alphabet and Facebook (FB), among others. Again, though, shorting technology is likely a losing long-term strategy, and over the past eight years, there have been few periods when an outright short would net any significant gains. If you’re aggressive enough to short tech, your best bets to squeeze out meaningful short-term returns are either a leveraged ETF or trading options against the XLK instead.
Expenses: 0.57 percent
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7 ETFs You Have No Business Buying originally appeared on usnews.com
