The “Back to the Mine: Hidden Gems 2.0” panel was a hit Monday at the Inside ETFs conference in Hollywood, Florida. Sure, there was a lot of “talking one’s book” as ETF issuers hailed their own offerings, but it still brought to light some interesting products that aren’t often discussed.
In rapid succession (three minutes each), 12 ETF insiders provided their most under-the-radar ETF ideas.
Here they are:
Everyone wants to invest in the next big technology theme, but why limit yourself to just one? The $48 million DTEC selects the top 10 most disruptive technology themes and equal-weights them.
It then takes the top 10 pure-play companies within each theme and equal-weights those (they have to have more than 50% of their revenues exposed to the theme).
The benefit of the strategy is that investors don’t have to bet on which disruptive tech company or theme will work over time.
Last year was a volatile year. The divergence in return between the top theme (health care innovation) and bottom theme (robotics and artificial intelligence)—was 45%.
Other themes in the DTEC basket include 3D printing, mobile payments, internet of things, clean energy, cloud computing, fintech, cybersecurity and analytics
You’d have to be living under a rock to not know about the ascendance of e-commerce. Amazon is dominating, and brick-and-mortar retailers are struggling to stay alive.
That said, you may be surprised to learn that online sales are still a relatively small slice of the overall retail pie. Only about 10% of retail sales happen online, according to Simeon Hyman, global investment strategist at ProShares.
According to him, that share is expected to grow to 25% over the next two decades, as hundreds of millions of people around the world get connected to the internet for the first time (200 million people got their first mobile device in 2017).
With that growth trajectory, shares of online retailers should continue to rise, benefiting ONLN. The $33 million ETF tracks retailers that mainly sell online or through other nonstore channels. The fund is global in scope and uses a modified market-cap-weighted approach.
Holdings must have a market cap of at least $500 million; the largest company is capped at 25% of the portfolio; and U.S. exposure is likewise capped at 25% of the fund.
Betting on rising interest rates through inverse bond ETFs is great, but what if you could get exposure to interest rates directly?
That’s what the $11 million UBLR aims to do. It provides direct exposure to three-month dollar Libor, rising and falling by the same amount as the interest rate. If Libor increases from 2% to 2.2%, ULBR should rise by 10%.
It’s an interesting way to bet on an interest rate that is strongly influenced by Fed policy.
It’s as tough to predict that market as it is to predict the weather, says Bruce Bond, co-founder and CEO of Innovator Capital Management.
That’s why his firm developed S&P 500 Defined Outcome ETFs, products that help investors go from hoping the market rises to knowing what their returns will be over a one-year outcome period. Bond says it’s like buying the S&P 500 with a built-in buffer.
Each buffer—the amount of downside protection the funds seek to provide has a corresponding cap—the maximum upside an investor will experience. For the October series of defined-outcome ETFs, the initial buffers were 9% with a cap of 15.3% for BOCT; and 15% with a cap of 10% for POCT, and a 30% buffer with a cap of 9.9% for UOCT.
According to Bond, before fees, investors using the S&P 500 defined-outcome ETFs are going to meet or exceed the return of the S&P 500 in all market conditions, unless it exceeds the caps.
PRID is an equity ETF that aims to deliver marketlike returns for socially conscious investors.
According to Richard Cea, head of ETPs for UBS, employment discrimination is widespread. But those companies that discriminate against LGBT people, which together number 10 to 15 million, are at a disadvantage.
The companies that don’t have open policies will have a hard time attracting the best talent, he says. Companies that value diversity and hire the best, most innovative people will outperform.
The $2.5 million PRID captures that innovation. It starts with the Russell 1000, removes illiquid names; removes companies that have not been profitable over the last 12 months; and selects the companies that rank the highest on the Human Rights Campaign Foundation’s corporate equality index.
The resulting 300 companies are market-cap-weighted. Sector tilts for the fund are in line with the broad market, giving investors marketlike exposure while investing in a socially conscious way.
About 60% of the global bond market is outside the U.S., but U.S. investors on average have only 7% of their fixed-income portfolios invested globally.
Enter JPGB, a way for investors to invest in the best fixed-income ideas across the globe, based on the analysis of the 280-strong J.P. Morgan investment team. The $180 million ETF has a higher yield than the Barclays Aggregate.
If you’re looking for a concentrated, actively managed portfolio of international stocks with compelling growth and value characteristics, look no further than DINT.
The ETF has 32 holdings, taken from the best ideas of the Davis Advisors equity team. Thirteen countries are represented, with five-year average earnings per share growth of 20.4% and a P/E of 9.5—significantly cheaper than 12.1 P/E for the benchmark.
The $95 million fund avoids state-owned enterprises and focuses on two key themes: the growth of the online consumer; and the need to transport people and packages globally.
Reverse Cap Weighted U.S. Large Cap ETF (RVRS)
If smaller companies tend to have higher returns over time, why do stocks’ indices tilt toward larger companies?
That’s the question that nagged Phil Bak, founder & CEO of Exponential ETFs, for a long time. His analysis of the data showed that bigger companies don’t go in one direction forever. Mean reversion exists in the market. From GE to Sears, old companies fall, and new companies arise to take their place.
RVRS targets these new companies by giving them the biggest weighting in the fund. The smallest companies in the S&P 500 get the biggest weights and the largest companies get the smallest weights.
When you reverse the cap, you systematically buy low and sell high; it lets you exploit mean reversion and exploit the gap between large cap and midcap, he says.
WisdomTree CBOE S&P 500 PutWrite Strategy Fund (PUTW)
The nearly $240 million PUTW is a product that tracks the CBOE S&P 500 Put-Write Index. The data show that writing puts has been more lucrative than a covered-call strategy, even though the two should be equal based on options theory.
Now may be a good time to consider an option-writing strategy as market volatility rises. Incorporating a put-write strategy into your portfolio may enhance returns while reducing the volatility of your portfolio.
The problem with market timing is missing the best days. If you had missed just the five best days over the past 20 years, your returns would have been cut in half, explains Dan Muzzarelli, VP of institutional ETF business development at Franklin Templeton.
That’s why staying invested and staying the course is the most important thing you can do for your portfolio. FLQL, a $464 million multifactor U.S. large-cap ETF that weights stocks based on quality, value, momentum and low volatility, helps you stay invested.
It has 15% lower average risk than the investment universe.
Innovation isn’t limited to just technology companies. KLDW is an innovation fund, but one that focuses on innovation across all sectors and geographies.
Highly innovative companies tend to outperform, and the best way to measure innovation is by digging deep into expense ratios and finding those companies that are spending big on R&D and advertising (as a percentage of sales).
The $126 million KLDW does that, and then equal-weights the stocks of companies it finds that have a big stock of “knowledge capital.”
Cheap and easy commodity exposure is what COMB aims to deliver. Compared with the average 0.72% expense ratio of the typical broad commodity ETF, COMB’s 0.25% fee looks downright cheap.
The $55 million ETF is also relatively hassle-free. Other broad commodity products are often structured as partnerships—which distribute complicated K-1s (a headache at tax time)—or ETNs, which have credit risk.
COMB does away with all that. It also tracks the Bloomberg Commodity Index, a basket of 21 commodities with a 33% sector cap. Gold, natural gas and corn are the current top holdings.