Overlooked ETFs That Advisors Should Consider

This week’s ADP private payrolls report included a data point that caught my eye. Hiring by “small business,” defined as companies with 20-to-49 employees, was down noticeably. Many investment advisors run small businesses, “boutiques” as we call them. And so, I suspect some of those advisors feel as I do, that we always hope small businesses will flourish.  

Large independent investment firms have become much more plentiful and have grown substantially over the course of my nearly 40-year career, and they have done a lot of good things for investors and advisors. But for those of us who still root for boutique advisors, the “mom and pop” version of the investment advisory industry, the wall of worry might be getting higher.  

First it was milkmen, then travel agents, then hardware stores, and now a wide range of smaller businesses have succumbed to what has been a massive consolidation. We see it in the stock market, with a small number of giant companies dominating the headline indexes. It is as if the old Pixar movie “Monsters Inc.” has become a real-life story for now.  

How Boutique Advisors Can Differentiate  

I have highlighted several “undiscovered” ETFs over the past year, and I’m doing so again today. But in this case, I am focusing on what I figure should be a strong kinship between smaller advisory firms and smaller ETF shops. I have always felt that this is a key differentiator, as it was for my own practice back when I ran one. 

The simple fact is that the bigger an advisory firm gets, the fewer ETFs they can reasonably consider. Even if an ETF has a very low asset base but high liquidity (since the underlying securities in the ETF basket are the key driver of the ETF’s bid-offer spread), there is often a perception issue. If an investment firm manages $10 billion in assets, an ETF that has $40 million in it would love to see that firm take a 1% position. That would add $100 million to such a fund, more than tripling its assets in a flash.  

But that’s where the fantasy ends. Maybe it happens, but if it does, it is not often.

And that is where boutique advisors have a dynamic differentiator. Since I am a terrible golfer, I’ll make a familiar analogy: if I’m the last to go in my foursome, and everyone else has hit their ball into the woods, the entire fairway is still open for me! Now, I’ll likely join them searching around trees for my ball, but for boutique advisors, this is an opportunity they can capitalize on much easier.

So, in the spirit of smaller but mighty advisors, ETFs between $20 million and $49 million in assets (a million for each end of the range of that ADP survey) and terrible golfers everywhere, here is an introduction to a few ETFs that might be worth an advisor introducing themselves to as part of their research process.

3 ETFs Investors Might Have Missed

The $30 million Teucrium Soybean ETF (SOYB) is one of a series of funds that track a single commodity. Global food scarcity is a long-term problem that is bound to impact commodity prices. And those prices tend to be highly cyclical. Soybean prices are at the root of what ultimately manifests itself as inflation, and SOYB is near the bottom of a trading range that goes back to this time in 2021.  

The $33 million Syntax Stratified US Total Market Hedged ETF (SHUS) includes a feature that many other broad market funds might benefit from, yet don’t use. SHUS is an “ETF of ETFs” that owns three of the firm’s funds that cover large, mid, and small cap stocks. But the added feature is a simple hedged overlay in the form of an out of the money put option on the S&P 500. The current put is struck at $490 and expires this December. So as opposed to hedging away much of the ETF’s upside, this fund lets more than 96% of holdings (the three equity ETFs) sit in the driver’s seat but has a” tail risk hedge” to complement it.  

The last of the trio is a $47 million ETF known as The Acquirers Fund (ZIG) starts with a calculation called the Acquirer's Multiple, a valuation measure that aims to identify stocks of companies that are takeover targets. This active fund’s managers apply additional disciplines from there to arrive at a 30-stock portfolio.  

Good things can come in small packages. That’s the case in the investment advisory industry, as well as in the world of ETFs.