There is a deeply flawed school of thought prominent in the
world of exchange-traded products and it applies directly to new
and ETNs. Many investors believe they should wait for new funds
to mature before getting involved.
"Mature" means wait for a new ETF to gain assets and
sufficient average daily trading volume, though neither metric
has ever been scientifically linked to an ETF's total
Think about that for a moment. By waiting for Investor A to
get commit capital to a new ETF, Investor B is succumbing to the
same follow-the-herd mentality that has doomed market
participants for years.
Here is real world example of what can happen when investors
play the waiting game with new ETFs and by "new," it is funds
that are less than a year old that are being referred to. The
PowerShares S&P 500 High Dividend Portfolio (NYSE:
) debuted on October 18, 2012.
Although SPHD has yet to reach the overrated $100 million in
assets under management threshold, volume is decent at over
60,000 shares per day and only once during the fourth quarter did
the midpoint on SPHD's bid/ask spread exceed 50 basis points
above the ETF's net asset value. Since its debut, SPHD has gained
nearly seven percent and has delivered four dividend payments (it
pays a monthly dividend) totaling about 41.5 cents per share.
To be fair, not all new ETFs merit investors' consideration,
but not all of these funds should be ignored, either. At least
not simply because they are new. The following rookie ETFs are
worth looking at right now and all of them debuted this year.
PIMCO Foreign Currency Strategy ETF (NYSE:
) The PIMCO name certainly helps and that is perhaps one reason
why the PIMCO Foreign Currency Strategy ETF is off to an
impressive start having attracted $26.6 million in AUM in just
over a month of trading. FORX is an actively managed ETF, meaning
investors will pay up a bit for the privilege of PIMCO
management, though an expense ratio of 0.65 percent is decent
among actively managed products.
FORX invests "in currencies, currency forwards, or fixed
income securities denominated in the currencies of foreign
(non-U.S.) countries" and "intends to limit its exposure to any
one currency to 20% and to maintain a portfolio duration between
zero and three years,"
according to PIMCO
What is attractive about FORX is its allocations to
countries that have not engaged in currency
debasement via monetary easing
. For example, Canada, Norway, Australia and New Zealand combine
for nearly 39 percent of the new ETF's weight.
Global X SuperDividend U.S. ETF (NYSE:
) This one will really get the naysayers going because the Global
X SuperDividend U.S. ETF is not even a week old. However, DIV is
not offering up an opaque concept that warrants a wait-and-see
approach. Rather, the new fund is quite straight forward.
Home to 50 stocks that are almost equally weighted, DIV is the
U.S. complement to the successful Global X SuperDividend ETF
). SDIV crossed the $100 million AUM level in August and has
since more than quadrupled that total. For a moment, think about
what would have happened if an investor was thinking about buying
SDIV in May 2012 and declined in the essence of waiting for the
ETF to reach $100 million in assets.
That investor's entry point was about 10 percent and he missed
out on three months of dividends because SDIV pays a monthly
dividend. There are no guarantees DIV will follow a same
trajectory, but Global X does expect DIV will pay a monthly
dividend. Investors can take comfort in the fact that DIV is home
to plenty of familiar, low-beta names such as Dow components
), Merck (NYSE:
) and Verizon (NYSE:
WisdomTree Global Corporate Bond Fund (NASDAQ:
) For the investor looking for a complement to or a yield above
that of the iShares iBoxx $ Investment Grade Corporate Bond Fund
), the newly minted WisdomTree Global Corporate Bond Fund is a
GLCB debuted at the end of January and should not be viewed as
a high-risk version of LQD. U.S. issues account for almost 52
percent of the new ETF's weight and half the holdings are rated A
or AA with another 21.7 percent garnering a BBB rating. Overall,
GLCB offers exposure to 15 countries, including four emerging
GLCB's effective duration if 5.54 years with an embedded
income yield of 3.72 percent,
according to WisdomTree data
. The ETF's 30-day SEC yield is 35 basis points higher than
For more on ETFs, click
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