Top 10 Most Exotic ETFs

March 13, 2013

The ETF world is quickly evolving, and sometimes it’s all but impossible to keep up with the pace and scope of innovation.


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 ETFs 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 existence.

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 structure.

9.  AlphaClone Alternative Alpha ETF (NYSEArca: ALFA)

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 rebalanced quarterly.

7.  Guggenheim Insider Sentiment ETF (NYSEArca: NFO)

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 annually.

6.  Credit Suisse Merger Arbitrage Liquid ETN (NYSEArca: CSMA)

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) deal.


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