In the expanding universe of exchange-traded funds (ETFs),
it's sink or swim.
Any ETFs that fail to gain a big enough investor following
eventually are shut down. It simply costs too much to operate
fund that only has a few million dollars and trades only a few
thousand shares every day.
Yet for every ETF that disappears from the market, a new one
is launched. Of course, some of these ETFs are simply "me too"
products that merely replicate the composition and performance of
the most popular funds. At this point, do investors really need
yet another ETF that mimics the S&P 500 Index?
That's why ETF sponsors are trying to come up with new angles,
launching funds that capitalize on key investing themes that
haven't been covered by other ETFs. In the past few months, we've
seen several solid new ETFs that you should know more about. They
may take time to build up assets, but they hold a great deal of
1. ProShares Launches S&P 500 Aristocrats ETF
|We're big fans of companies that have built a long-term
track record of dividend payments. And that's what you'll
get with this ETF, which owns stocks in companies that have
boosted their dividends for at least 25 years in a row. The
track record is undeniably impressive: An index developed
by S&P that underpins this ETF has gained 14% a year,
on average, over the past five years, handily beating the
S&P 500's 10% annualized gain.
I wrote about these "aristocrats" earlier this year, noting
that these stocks also tend to deliver above-average
dividend yields, not just solid dividend growth. That's a
great reason to own this ETF. But investors shouldn't
necessarily anticipate continued outperformance with this
approach. As I wrote back in February, rising interest
rates will eventually lead more investors to buy bonds and
CDs, "which will draw some attention away from
2. WisdomTree Emerging Markets Con (Nasdaq:EMCG
|This ETF resolves a long-standing conundrum. Many
emerging-market stocks are actually much more closely tied
to Europe and the U.S. than local economies. The
iShares MSCI Emerging Markets ETF (
, for example, counts companies such as Samsung, Taiwan
Semiconductor and Hyundai Motors among its top 10 holdings.
It's a challenge I noted roughly a year ago:
"An investment in emerging markets is really an indirect
proxy for developed markets. Even large emerging-market
companies that have greater local exposure are often still
tied to global pricing trends. I'm talking about the
commodity producers, major banks and basic materials
That's why this new ETF is so appealing. It focuses on
companies selling into the fast-rising emerging-markets
middle class. The fund's assets have a 31% weighting in
consumer discretionary stocks, 27% in consumer staple
stocks, 18% in banks and insurers, and 10% in utilities.
China, Brazil and South Africa account for roughly 40% of
the portfolio, while Mexico, India, Indonesia and Turkey
make up another 33%.
3. Forensic Accounting ETF (Nasdaq:FLAG
|This fund aims to own stocks in companies that maintain
conservative accounting policies. Aggressive revenue
recognition, expense undercounting or erratic accounts
receivables trends are just some of the ways that a company
can be booted out of this ETF, which is rebalanced twice a
year. The companies that are included in the fund are given
a grade, with those firms receiving an A constituting fully
40% of the portfolio.
This ETF has risen roughly 15% since its launch in early
2013, beating the S&P 500 by roughly 5 percentage
points. But the 0.85% expense ratio is a bit stiff when you
consider that most ETFs have an expense ratio below
4. iShares MSCI USA Quality Factor (Nasdaq:QUAL
|This ETF is likely to fare comparatively well in bear
markets, as it focuses on companies with low levels of
debt, consistent profit levels in any economic climate, and
high returns on equity. As an added kicker, it carries a
rock-bottom expense ratio of just 0.15%.
You can already see its defensive posture in the three
months it has been trading. The S&P 500 has shed 2% of
its value in that time, while this ETF has traded flat. The
fact that nearly 40% of the portfolio is tied up in tech
stocks such as
Apple (Nasdaq: AAPL)
Google (Nasdaq: GOOG)
Microsoft (Nasdaq: MSFT)
highlights the fact that tech companies still hold
considerable amounts of cash.
Risks to Consider:
New ETFs sometimes have wide bid/ask spreads while trading
volumes remain low. If they are successful, those trading volumes
will rise, and the bid/ask spreads will narrow.
Action To Take -->
All four of these ETFs hold solid long-term promise, and deployed
as a basket, represent a fairly conservative to key current
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