The ETF world is quickly evolving, and sometimes it's all but
impossible to keep up with the pace and scope of innovation.
With over 1,400
now trading and just about every corner of the market covered,
issuers are increasingly launching exotic products to complement
the saturated beta-strategy market.
A slew of interesting, some might even call wacky, ETFs have
launched in recent months that can make your head spin just trying
to decipher what they're trying to achieve.
Most of them come with pretty hefty expense ratios, and most
investors probably don't even know they exist. Not surprisingly,
many of these existing products have little to no assets and are
probably on their way to extinction.
It goes without saying that most of these exchange-traded funds
and notes are probably not for the average investor looking for
broad equity exposure.
Still, following these new launches puts into perspective just
how complex the industry has become, and reminds me of one of the
most basic lessons of investing:Know what you own.
So, here's a list of my top 10 most exotic ETFs and ETNs in
For a list of underlying indexes, expense ratios, launch dates,
assets under management and one-year returns, see the table at the
end of the article.
10. Forsensic Accounting ETF (NYSEArca:FLAG)
This newcomer recently launched through Exchange-Traded
Concepts. FLAG uses its forensics expertise to select and weight
its holdings based on earnings quality. It combs through balance
sheets, cash flow statements, and income statements of the
500-largest U.S. companies to assign each a letter grade from "A"
to "F," then weights according to the score, in a tiered
9. AlphaClone Alternative Alpha ETF
ALFA scopes out the holdings of hedge funds in 13F filings,
which are disclosed to the public 45 days after every quarter.
After filtering hedge funds based on rankings and size, ALFA
combines their ideas with its own proprietary methodology to
piggy-back on the holdings of some of the top hedge fund managers.
ALFA has the ability to short positions for hedging purposes.
8. Etracs Fisher-Gartman Risk On ETN (NYSEArca:ONN)
and Etracs Fisher-Gartman Risk Off ETN (NYSEArca:OFF)
ONN and OFF track indexes created by Mark Fisher and Dennis
Gartman. They attempt to provide investors exposure to securities
believed to beneficial during "risk on" and "risk off" macro global
environments. ONN and OFF include a hodgepodge of equities,
sovereign bonds, commodities and currencies. Each index has 150
percent long exposure and 50 percent short exposure, and is
7. Guggenheim Insider Sentiment ETF
This alpha-seeking ETF scopes out 100 U.S. companies that are
seeing the most significant insider-buying trends and favorable
earnings estimates by Wall Street analysts. The fund looks at the
number of insiders buying, as well as the size of the purchases,
but doesn't account for any insider selling. NFO is rebalanced
6. Credit Suisse Merger Arbitrage Liquid ETN
CSMA targets companies from developed countries in North America
and Europe. It's one of three products that attempt to capitalize
on spreads that can develop after merger announcements. The ETN
takes a long position in companies being acquired in proposed cash
deals, and will also take a short position in the acquiring
companies in cases of a stock (or stock and cash combination)
5. Credit Suisse Gold Shares Covered Call ETN
A newbie that just launched in January 2013, GLDI holds the SPDR
Gold Trust ETF (NYSEArca:GLD), while writing covered calls on those
shares. It sells about 3 percent out-of-the-money calls each month.
This is an income-generating strategy that could work well unless
the price of gold plummets since GLDI has downside exposure to
4. Guggenheim Spin-Off ETF (NYSEArca:CSD)
CSD holds roughly 25 U.S.-listed companies that have been spun
off through an IPO or an equity carve-out in the past 30 months.
The fund naturally has a small- to micro-cap tilt and has a global
reach. CSD rebalances semiannually. Recent top holdings include
Fiesta Restaurant Group, Marathon Petroleum, Phillips 66 and
3. Etracs Daily Long-Short VIX ETN
XVIX attempts to capture the spread between the S&P 500 VIX
Mid-Term and Short-Term Futures, based on the steepness of the VIX
futures curve. The ETN takes a 100 percent long position in midterm
futures while taking a 50 percent short position in short-term
futures in an attempt to capitalize on the contango that's often
seen with short-term VIX futures. The ETN is rebalanced daily.
2. iPath Global Carbon ETN (NYSEArca:GRN)
GRN tracks an index of liquid-carbon-related credit plans. The
problem is that this market is barely developed and 95 percent of
the ETN is exposed to the emissions reduction unit (ERU), which is
a type of emissions unit that represents 1 tonne of CO
. GRN has been trading since June 2008, but it's looking to be a
race between the further development of carbon credit markets and
the ETN being forced to liquidate due to low assets. It's a great
idea, but GRN may have launched ahead of its time.
1. ALPS U.S. Equity High Volatility Put Write Index
Only a few weeks old, HVPW's strategy is truly mind-boggling.
The fund's strategy is to generate income by selling naked put
options on 20 of the largest-capitalization stocks that exhibit the
highest volatility. It sells 60-day puts at a time and distributes
cash equivalent of 1.5 percent of the fund's net asset value every
two months. While options on volatile stocks could generate more
income, the downside risk is that HVPW is writing naked puts, so
losses could be substantial if the underlying shares tank.
||Expense Ratio (bps)
||1-Year TR Returns (%)
SPDR S&P 500
||Del Vecchio Earnings Quality
||AlphaClone Alternative Alpha
||AlphaClone Hedge Fund Long/Short
||Etracs Fisher-Gartman Risk On ETN
||The Fisher-Gartman Risk
||Etracs Fisher-Gartman Risk Off ETN
||The Fisher-Gartman Risk
||Guggenheim Insider Sentiment
||Sabrient Insider Sentiment
||Credit Suisse Merger Arbitrage Liquid ETN
||CS Merger Arbitrage Liquid
||Credit Suisse Gold Shares Covered Call ETN
||CS Nasdaq Gold FLOWS 103
||Etracs Daily Long-Short VIX ETN
||S&P 500 VIX Futures
||iPath Global Carbon ETN
||Barclays Global Carbon
||ALPS U.S. Equity High Volatility Put Write
||NYSE Arca US Equity High Volatility Put
At the time this article was written, the author had no
positions in the securities mentioned. Contact Dennis Hudachek at
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