ETF Scary Monsters & Super Freaks

October 31, 2014

No need for the horror movies, these ETFs will keep you up all night.

I love Halloween. I live in a small New England town. Kids trick or treat in the dark, moving between jack-o-lantern-lit houses in amoebic packs of Harry Potters and vampires and Han Solos, scavenging loot from porches. It’s something out of Norman Rockwell. There’s even a parade to start off the night.

As an adult, the very best part of Halloween is costume judgment. We descend on a friend’s house in one of the hot trick-or-treating neighborhoods, and sit on the porch with a glass of wine deciding which kids have made the effort worthy of a full-sized candy bar, and which kids are getting popcorn in plastic bags.

In other words, it’s exactly like my day job.

There are certain archetypes in judging costumes, just like there are with ETFs, so without further ado, the scary monsters of an ETF Halloween …

Zombies

For a good five years, zombies have dominated the local trick or treating scene. The makeup’s easy, and you can just tear up some old clothes and mumble “brains…” a lot.

In the ETF world, we’ve got more than our share of undead who, while slow moving, will kill the unwary. Funds that were dead a long time ago, they just refuse to recognize it and stay buried.

The winner here, of course, is the worst ETF in the world, the Elements Linked to Spectrum Large Cap U.S. Momentum ETN (EEH). Since I pointed it out in September, it’s continued to trade a few thousand shares a day. It closed yesterday at $31.95, just a smidge over its fair value of … $14.76.

It just won’t die, and it’s slowly eating somebody’s brain, a few thousand shares at a time.

Vampires

Vampires all but disappeared from the yearly Halloween parade until the double-whammy combo of the sparkly kind from Twilight, and the heavy metal kind from David Tennant’s excellent Fright Night Reboot kicked them back into high gear a few years ago (seriously, it’s a masterpiece).

But the vampires of the ETF world have never gone out of style. There are whole sectors of the ETF market that just slowly suck the blood out of investors with higher fees or surprise expenses.

The most notable class of these vampires is definitely the MLP funds, specifically those who have chosen to organize as traditional corporations. Those funds have to pay taxes internally, which balloon their headline expense ratios to, in some cases, 8 or 9 percent.

 

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