Tech and cybersecurity are top trends for many newly launched exchange-traded funds.
Since the stocks in exchange-traded funds are available for investors to examine, the risk is lower than an actively managed mutual fund. Investors do not need to wait the traditional three years before buying an ETF because they can see what’s inside, says Todd Rosenbluth, head of ETF and mutual fund research at CFRA, a New York-based investment research company. “They can understand the investment theme rather than wait for a manager to possibly demonstrate stock selection skills,” he says. Here are seven newer ETFs to consider adding to a portfolio.
Global X Cybersecurity ETF (ticker: BUG)
This fund tracks companies involved in cybersecurity technology, including developing and managing security protocols that prevent intrusion and attacks on systems, networks, applications, computers and mobile devices. The ETF launched on Oct. 25, 2019 and has an expense ratio of 0.5% with an average annualized return of 41% since its inception. Global X Cybersecurity is a strong technology thematic ETF as companies increase their defenses from cyberattacks, particularly as more people plan to work from home for the intermediate term, Rosenbluth says. “This ETF has outperformed older cyber ETF peers, HACK and CIBR, in the past year and holds companies with greater focus on the theme including Crowdstrike Holdings (CRWD) and Zscaler (ZS).”
ProShares S&P Technology Dividend Aristocrats ETF (TDV)
This fund also launched in late 2019, but it is appealing since it provides diversified exposure to growing dividend payers, Rosenbluth says. Companies included in the ETF must have increased dividends for at least seven consecutive years. “The ETF has outperformed peer First Trust NASDAQ Technology Dividend Index Fund ETF (TDIV) and the broader Technology Select Sector SPDR Fund (XLK) and owns ADP, Mastercard (MA) and Oracle (ORCL) in relatively equal size,” he says. The one-year return is 71% with an expense ratio of 0.46%. “You want to make sure the fees are reasonable,” says Evan Kulak, co-founder of Polaris Portfolios, a Chicago-based financial planning firm. “Many times, newer ETFs will have higher expense ratios than more established ETFs since they have fewer assets.”
Amplify Seymour Cannabis ETF (CNBS)
Listed in July 2019, Amplify Seymour Cannabis ETF is an actively managed ETF in the cannabis sector. The holdings adjust frequently because mergers and acquisitions, IPOs and macro legislative changes occur daily in the cannabis sector. “CNBS can be responsive to changes even in the sector that is thematic and long term,” says Timothy Seymour, founder of Seymour Asset Management and portfolio manager of the Amplify Seymour Cannabis ETF. “In a fast-evolving sector like cannabis, being active is critical. CNBS is able to make adjustments to the portfolio as events happen that affect the investable universe.” The ETF has a 10.9% return since inception, a 51% year-to-date return and an expense ratio of 0.75%.
Vanguard U.S. Multifactor Fund ETF (VFMF)
The Vanguard U.S. Multifactor Fund ETF is a midcap blend ETF that listed in 2018 and invests in stocks by targeting value, momentum and quality after an initial volatility screen. The expense ratio is 0.19%, and the one-year return is 72%. ETFs have lower costs and most are not higher than 1% compared to mutual funds that have expense ratios as high as 5%, says Stuart Michelson, a finance professor at Stetson University. Investors should also familiarize themselves with the sponsor of the ETF, which is the investment company behind the ETF, Kulak says. “Investors want to make sure the sponsor is committed to the success of the ETF and is financially stable,” he says.
Vanguard International Dividend Appreciation Index Fund ETF (VIGI)
The Vanguard International Dividend Appreciation Index Fund ETF is a global large-cap growth ETF that tracks the performance of the NASDAQ International Dividend Achievers Select Index. The ETF has a one-year return of 44% and a three-year return of 11% with an expense ratio of 0.2%. ETFs are a popular way to gain exposure to trends in the market, and new ETFs are introduced pretty regularly, says Mike Loewengart, managing director of investment strategy of E-Trade, an Arlington, Virginia-based brokerage. “But before committing dollars to any investment, it’s critical to look under the hood. The goal of an ETF is to mirror a given benchmark, so if the fund is relatively new, dig into the record of the underlying index.”
Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF (GSLC)
The Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF is a large-blend ETF with a one-year return of 53% and a three-year return of 18% with an expense ratio of 0.09%. Active beta ETFs seek to find stocks of good value, strong momentum, high quality and low volatility. Investors should look at the difference between the record of the underlying index and the newer ETF’s record, Loewengart says. “If the investing style strays too far away from the index, you may want to explore other investment products that align more closely. While a newer ETF may appeal to investors looking to get in on a new market trend, make sure the objectives of the fund stay true to your long-term investment strategy.”
Goldman Sachs Access Investment Grade Corporate Bond ETF (GIGB)
The Goldman Sachs Access Investment Grade Corporate Bond ETF tracks the FTSE Goldman Sachs Investment Grade Corporate Bond Index and holds the bonds of companies such as Apple (AAPL), AT&T (T) and JPMorgan Chase (JPM). The ETF has a one-year return of 3.8% and an expense ratio of 0.14%. Some new ETFs are launched with seed money, Loewengart says. “So if not enough people invest in the fund, there’s a possibility the fund could liquidate and you would be left with cash in hand when it could be going to work in the market.” He says another consideration is that the liquidity of both the ETF (daily volume) and the underlying investments will determine the bid-ask spread. “This can be significant for new funds and ones that traffic in thinly traded securities. In those situations, consider using a limit order.”
Seven best new ETFs to buy:
— Global X Cybersecurity ETF (BUG)
— ProShares S&P Technology Dividend Aristocrats ETF (TDV)
— Amplify Seymour Cannabis ETF (CNBS)
— Vanguard U.S. Multifactor Fund ETF (VFMF)
— Vanguard International Dividend Appreciation Index Fund ETF (VIGI)
— Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF (GSLC)
— Goldman Sachs Access Investment Grade Corporate Bond ETF (GIGB)
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