Thematic ETFs offer unique, tactical strategies.
Wall Street is a weird place. While most investors tend to watch a short list of investments, including blue-chip stocks and index funds, there remains a massive ecosystem of alternative investments and niche products out there to serve almost any strategy. Just consider that the number of exchange-traded funds worldwide is estimated at more than 7,000 different products. This means that with just a few hundred dollars and a brokerage account, small-time investors can carve out a position in anything from foreign stocks to commodity futures. Sometimes the simplest strategy is best, of course. But if you’re interested in quirky investment options — or if you’re just curious what weird things happen to be out there — check out this list of nine thematic ETFs to buy that you’ve likely never heard of.
IQ Merger Arbitrage ETF (ticker: MNA)
MNA is your simple way to play merger and acquisition trends. This thematic ETF managed by New York Life seeks to provide a profit by investing in global companies for which there has been a public announcement of a takeover by an acquirer. The goal is profiting from the “arbitrage” between the price when the deal is announced and what valuation is actually achieved at the close of the transaction. Top holdings right now include Nuance Communications Inc. (NUAN), which was subject to a takeover by Microsoft Corp. (MSFT) in April, and Arena Pharmaceuticals Inc. (ARNA), which saw a $6.7 billion bid from Pfizer Inc. (PFE) in December. With almost $700 million under management, this niche fund is one of the more established offerings on this list of ETFs.
Global X Millennial Consumer ETF (MILN)
Oh, those nutty millennials and their avocado toast! In all seriousness, the U.S. economy is being reshaped by the shift in spending habits among this age group that increasingly carries more spending power. Holdings of MILN look to acknowledge these trends, include e-commerce giant Amazon.com Inc. (AMZN) to tap into online shopping trends but also more traditional stocks like home improvement retailers Lowe’s Cos Inc. (LOW) and Home Depot Inc. (HD), which are capitalizing on household formation as millennials increasingly enter the real estate market. No one group can single-handedly support the U.S. economy or the stock market, but for those interested in tapping into this generation’s unique spending habits, MILN could be worth a look.
VanEck Social Sentiment ETF (BUZZ)
Speaking of one group trying to move the market, one thematic ETF that could be worth a look in 2022 in the wake of “meme stock” mania over the last year is BUZZ. This VanEck offering looks to build a portfolio based on stocks that are being talked about most on social media. Specifically, it rebalances regularly to weight towards large-cap U.S. stocks “which exhibit the highest degree of positive investor sentiment and bullish perception” in social media, blog posts and other media. Right now, its top holdings are Apple Inc. (AAPL) and Tesla Inc. (TSLA).
MicroSectors FANG+ ETN (FNGS)
Of course, there’s a short list of stocks people tend to talk about most, so why bother fishing around beyond those most popular names? That’s the philosophy behind this FANG+ fund that is laser focused on just 10 tech stocks, with a 10% weighting in each. You can probably name these popular picks on your own, but they are Meta Platforms Inc. (FB), Apple, Amazon, Netflix Inc. (NFLX), Alphabet Inc. (GOOG, GOOGL), Alibaba Group Holding Ltd. (BABA), Baidu Inc. (BIDU), Nvidia Corp. (NVDA), Tesla and Twitter Inc. (TWTR). You may ask why you can’t buy each of those picks on your own, but do the math on share prices and it becomes quickly apparent it’s difficult to equally weight shares in all 10 companies even if you had the capital to do so. For investors looking to avoid this work, this niche instrument will do the purchasing for you.
VanEck Low Carbon Energy ETF (SMOG)
This VanEck fund attempts to track the overall performance of renewable energy stocks. The list of holdings includes wind, solar, hydropower, hydrogen, biofuel or geothermal technology companies as well as smart grid technology manufacturers. To be clear, this doesn’t always mean the sole purpose of a holding is to operate sustainably in 100% of its business. For instance, top positions include Tesla because of its battery technology and utility NextEra Energy Inc. (NEE) for its green power generation alongside traditional power sources. However, the reality is that there aren’t a ton of ways to directly play the low carbon energy revolution in individual companies — and that’s what makes SMOG one of the best thematic ETFs to invest in at the start of 2022.
AGFiQ U.S. Market Neutral Anti-Beta Fund (BTAL)
What a mouthful this ETF is! Taken word by word, the fund can be understood as an offering by fund manager AGF Management with a focus on U.S. stocks with a goal of taking a “market neutral” approach that can succeed in either a bear or a bull market. Adding a bit of extra spice, it also seeks stocks with low or negative “beta” readings — the Greek letter used in finance to quantify correlation to the broader stock market as a whole. Unpack all of that, and AGF is hoping to provide an ETF that goes up when the market goes down — but also a fund that goes up when the market goes up. That’s a tall order, to be sure, and recent performance isn’t all that encouraging that BTAL can deliver. But the fund was reformulated and rebranded recently, and with $115 million under management, it’s certainly got its share of fans in an uncertain environment.
Direxion Fallen Knives ETF (NIFE)
Taking a very different approach, NIFE looks to do what many investors may consider a terrible idea: to “catch a falling knife,” as the old adage goes. The origin of that phrase refers to the fact that it can be very dangerous to try to buy a stock that has fallen sharply because they tend to keep falling, however, NIFE looks to do exactly that by providing a rules-based approach to snatch up theoretical bargains that have fallen or are currently falling compared with peers. It’s worth noting the very bad news up front: Investors in this fund have lost about 20% in the last year while the S&P 500 has added more than 24% in the same period. However, if you want a niche thematic ETF — particularly if you’re expecting a short-term market correction in 2022 — NIFE could be worth a look.
Columbia EM Core ex-China ETF (XCEM)
When most investors think of emerging-market investing, they tend to think first about China. After all, it’s the world’s second-largest economy by gross domestic product. However, Chinese stocks have offered their fair share of volatility lately — and many in the U.S. have begun to question the ethics of doing business with Beijing, as evidenced by recent hesitation about the 2022 Olympic games from some athletes and sponsors. So if you want to play emerging markets, but without China as a part of your strategy for whatever reason, the XCEM fund can let you do that. Instead, you’ll focus on regions like Taiwan, India and South Korea. And interestingly enough, while XCEM is flat in the last 12 months, it’s actually outperformed major Chinese ETFs like the iShares China Large-Cap ETF (FXI) during the same period.
iPath Series B Bloomberg Livestock Subindex Total Return ETN (COW)
This is a very quirky niche ETF, though it is by far the smallest on the list with a meager $19 million in total assets at present. But it goes to show that just about everything can be an exchange-traded investment these days. COW is an exchange-traded note that holds futures contracts in both live cattle and lean hogs to give investors the most direct exposure they can get to physical livestock. If you’re interested in a hedge on hamburger prices or if you’re just uniquely interested in cow and pig markets, then this fund is for you. If not, well at least now you know there’s a fund out there holding actual cows and hogs, for whatever that’s worth.
9 best niche thematic ETFs you’ve never heard of:
— IQ Merger Arbitrage ETF (MNA)
— Global X Millennial Consumer ETF (MILN)
— VanEck Social Sentiment ETF (BUZZ)
— MicroSectors FANG+ ETN (FNGS)
— VanEck Low Carbon Energy ETF (SMOG)
— AGFiQ U.S. Market Neutral Anti-Beta Fund (BTAL)
— Direxion Fallen Knives ETF (NIFE)
— Columbia EM Core ex-China ETF (XCEM)
— iPath Series B Bloomberg Livestock Subindex Total Return ETN (COW)
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