These ETFs stand out in the crowd The ETF revolution has continued in earnest across the last 12 months, with 2018 welcoming more than 250 new exchange-traded products to U.S. investors. Some of these new…
These ETFs stand out in the crowd
The ETF revolution has continued in earnest across the last 12 months, with 2018 welcoming more than 250 new exchange-traded products to U.S. investors. Some of these new ETFs are simply variations on existing themes, either competing with existing sector funds on the market or focusing on a popular asset class with a subtle twist. However, some new ETFs are unique — and some are downright strange when you pop the hood and look at how they are put together. Here are some of the most interesting new ETFs.
You may have heard of the “Dogs of the Dow” strategy. Decades old, this tactic aims to buy the Dow Jones Industrial Average components that performed worst in the last year. The idea is these entrenched mega-caps can’t be held down for long. The Dow is only 30 U.S.-based stocks, however. This quirky Arrow fund invests in “the five worst performing countries where a return reversal or move back toward the mean (or average) is anticipated.” Right now, DOGS’ focus includes Pakistan, Qatar and the United Arab Emirates. It’s a unique idea. Keep in mind, however, that there are no guarantees that poorly performing countries will bounce back.
Getting much more literal about dogs, PAWZ offers a quirky play on the booming pet care industry. Investors should see the popularity of pets as a money-making opportunity. Consider that a recent report from the American Pet Products Association found that spending on pets in the U.S. topped $69.5 billion in 2017. That’s a lot of cash spent on food, toys and veterinary care. Components of this fund include Purina pet food owner Nestle, online retailer Petmed Express (PETS) and animal health giant Zoetis (ZTS), giving investors wide exposure to this specific industry. There are many consumer-oriented funds out there, but this is a unique take on a very specific spending segment.
Speaking of consumer funds, this ETF and the Direxion Daily Consumer Discretionary Bull 3X Shares ETF (WANT) are on opposite sides of the same coin and provide a leveraged bet on the consumer discretionary sector. That means the fund takes a stake in a group of stocks and uses derivatives to amplify that exposure. This is the first fund to slice out the discretionary sector and give you three times the exposure. With consumer spending in 2018 hitting records, this pair of ETFs launches at an interesting time. Buyers should beware of these instruments, however, because if you’re on the wrong side of the trade you will endure three times the losses.
As the introduction to “Star Trek” famously stated, space is the final frontier. And many investors are looking to the stars for profits as much as adventure. This recently-launched ETF invests in companies driving innovation and generating products that will aid in the exploration of outer space, including aeronautics firm Aerojet Rocketdyne Holdings (AJRD). While there are plenty of high-flying aerospace names, investors should note XKFF also classifies “the deep sea” as a similar final frontier full of new discoveries and potential profit, and includes some underwater exploration plays. The idea is that deep-water technologies could also help dig for minerals on other planets, if the opportunity arises.
ETF provider iShares has taken the focus on socially responsible investing to another level by offering bond investors a similar way to put their money behind investments they believe in. The BGRN green bond fund is comprised of investment-grade bonds issued to fund environmental projects “directly tied to promote climate or other environmental sustainability purposes through independent evaluation.” In other words, instead of investing in companies that are trying not to harm the environment you can directly put your money behind loans for projects that meet strict standards of energy and water efficiency.
A red-hot trend has been large-cap tech stocks known as FANG — Facebook (FB), Amazon.com (AMZN), Netflix (NFLX) and Google parent Alphabet (GOOG, GOOGL). What makes this and the MicroSectors FANG+ Index -2X Inverse Leveraged ETN (FNGZ) unique is they employ leverage to try and deliver twice the performance of FANG and six other techs, with FNGO giving twice the exposure to the upside, and FNGZ being an inverse fund. It’s risky to rely on a small group of stocks, and even more risky to put leverage behind that investment. Given the continued popularity of the FANGs, this pair of funds is certainly noteworthy. But it’s not entirely surprising given investor demand.
TigerShares has attempted to tap into investor interest in large-cap technology stocks across the U.S. and China. The result is a global who’s who list that includes many of the FANG components along with dominant Asian names, such as Alibaba Group Holding (BABA) and Tencent Holding. If you believe in the wide moat and deep pockets of major technology companies, this is a great one-stop investment to tap into those names regardless of where the company is headquartered.
Xtrackers MSCI Latin America Pacific Alliance ETF (PACA)
One emerging trend is the rewiring of trade routes between China and Latin America. Some U.S. policies have cut out countries like Mexico and Colombia as much as China, and businesses in these nations have found common cause in pursuit of growth. That has led some investors to bank on Latin stocks. Trade policies can change, and there are no guarantees that even if the current alliances between China and Latin America stick that they will ultimately lead to sustained growth. But if you believe connections with China will lift stocks like Mexico construction firm Cemex or Columbian financial Bancolombia, the PACA fund is an intriguing play on recent policies.
While some investors are focused on specific growth trends, others are convinced the next crisis could be right around the corner and it’s wise to consider what will withstand a downturn in the year ahead. This Amplify fund is designed as a buffer against black swan events — rare market disturbances such as the 2008 financial crisis or the 2001 dot-com crash that can erase portfolio values across the board. SWAN invests in low-volatility U.S. Treasurys as well as S&P 500 options that have a strike price below the current value of the index. As so many other investments chase outperformance, SWAN stands out as a unique way to hedge risk.
The most interesting new ETFs to buy
To recap, here are some of the most interesting new ETFs.