The ETF industry continues to grow in size and importance.
2013 was another spectacular year for the industry with inflows
exceeding $190 billion. 159 new products were launched last year,
taking the total number of products to 1551, while assets under
management have surged to $1.71 trillion. (Read:
3 Hot Sector ETFs for 2014
GLBL-X GURU IDX (GURU): ETF Research Reports
GUGG-INSDR SENT (NFO): ETF Research Reports
PWRSH-GLBL LIST (PSP): ETF Research Reports
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While large, plain-vanilla market cap weighted ETFs tracking the
broader market or popular segments continue to be very popular
with investors, there are some smaller but excellent ETFs that
focus on certain 'niche' corners of the market. These ETFs
provide access to some specialized strategies that are otherwise
unavailable to retail investors.
Below we highlight three 'niche' ETFs that had a strong
performance last year and look poised to outperform this year as
Invest Like Hedge Fund Titans with
Guru Holdings Index ETF
The hedge fund industry with about $2.4 trillion in assets is
accessible only to very wealthy investors as these funds
generally require minimum investments of $250,000 and also have
limits on cash withdrawals.
Further, hedge fund investing is expensive as they usually charge
an annual asset management fee of 2% and a performance fee of 20%
of fund's profits (2 and 2 fees). Also, their performance may not
justify the steep fees that they charge. (Read:
3 Niche ETFs Crushing the Market
In 2013--a spectacular year for US stocks, most hedge funds
delivered lackluster returns but some emerged as big winners.
Most investors would like to invest like George Soros, Carl Icahn
and John Paulson and there are some ETFs that provide access to
investing secrets of these stalwarts, without charging the hefty
fees that their funds charge.
Global X Top Guru Holdings Index ETF (
uses a proprietary methodology to compile the best ideas from a
select pool of hedge funds where the 13F information is most
valuable. They exclude hedge funds with high turnover. The fund
aims to generate alpha vs. benchmark equity indexes and
The product was launched in June 2012 and has attracted $541.9
million in assets so far. It charges 75 basis points in
expenses per year. (See:
3 ETFs to Watch for Big Moves this year
GURU has returned 81.0% from inception through the end of
2013, compared with 49.7% for SPY.
Profit from Private Equity Market's Strong Momentum and
Enjoy a Double-digit Yield
Private equity firms had a blockbuster year in 2013.
, investors in private-equity funds are expected to receive more
than $120 billion for 2013, up from last year's record of $115
billion. Strong sentiment resulted in record fund flow with firms
raising buyout funds totaling $143.5 billion last year, the
highest level since 2008.
If the stock market continues its uptrend and interest rates do
not rise sharply, then the private equity market can maintain its
positive momentum. Per
, Tiger 21-a group of super-rich individuals (median net worth
$75 million) sees private equity as the best opportunity in 2014.
Beat the cold weather with these hot sector
Another positive factor here is the Volcker rule, which seeks to
bar deposit taking institutors from proprietary trading and thus
private equity firms could gain market share in the proprietary
trading space. Private equity also has a low correlation to the
broader market and provides portfolio diversification.
While many investors are unfamiliar with this corner of the
financial market, it is definitely worth a look due to its
superior performance, positive outlook and low correlation with
the stock market. (See:
5 ETF Predictions for 2014
Private equity space is generally accessible only to super-rich
and institutional investors but retail investors can access this
space via an ETF.
PowerShares Global Listed Private Equity
tracks the Red Rocks Global Listed Private Equity Index. The
index is comprised of securities, ADRs and GDRs of 40 to 75
private equity companies.
Currently the fund has 64 holdings with U.S. PE firms accounting
for 42% of holdings, followed by UK and France at 18% and 8%
Expense ratio of 2.19% is certainly high but the product sports
an excellent yield of 13.5% currently. The ETF returned 37.1% in
Investors should however remember that private equity is a risky
asset class and during a period of market turmoil or prolonged
economic downturn this ETF may perform worse than the broader
During the financial crisis, private equity space and this
product had a terrible performance. So, this investment will need
to be monitored carefully.
Benefit from Insider Buying Trends with Insider Sentiment
Academic studies have shown that insider stock transaction data
can provide signals for the future direction of stocks in
question since insiders know their company best and where the
share price may be headed. In particular, purchase of shares by
insiders is usually a strong indicator of bullish trend.
Further companies with positive earnings estimates revisions are
more likely to outperform the broader market in the near
Guggenheim Insider Sentiment ETF (
is based on the Sabrient Insider Sentiment Index, which selects
securities on the basis of favorable corporate insider buying as
well as earnings estimate increases by analysts. Insider buying
trends are determined from the public filings of such corporate
The fund holds about 100 securities in almost equal weights.
Looking at the sector exposure, Financials (21%), Consumer
Discretionary (18%) and Industrials (17%) occupy the top three
The fund made its debut in September 2006 and has delivered
10.50% average annual return since inception compared with 6.95%
return by the S&P 500 during index during the same period. In
2013, NFO returned 36.13%.
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