3 ETFs With Unusual But Successful Strategies

Advisors can translate the complexity and expand client portfolios.

Why do we need plumbers? Because fixing a sink is not a skill everyone possesses. Speaking as one who can’t do much of anything beyond cleaning dishes and taking out the garbage, I truly appreciate skills I know I’ll never develop. The same case can be made for financial advisors. They have skills and knowledge that most people don’t, and they apply those skills to help improve the lives of the people who seek them. 

For many advisors, the toughest challenge is being found. Running a practice, overseeing investment management, staying up to date with planning topics and making sure clients and staff are happy is a lot to handle. So, when any aspect of the investing part of the business can be used to distinguish a practice amid a sea of competition, it makes sense for advisors to get familiar with them. 

Finding the Right ETFs for Clients

Ironically, some of the strangest ETFs have the identical issue. In a very top-heavy industry, with a handful of providers dominating the asset gathering, drawing attention to an ETF that fills a gap in certain portfolios is an ever-present challenge. To try to help all three sides of this relationship (advisor, ETF provider, client), here are a trio of ETFs that have a history of doing something different and doing it well, making them potential considerations for advisors. Perhaps after reading this, these ETFs and advisors won’t be such “strangers” anymore. 

QQXT: The Nasdaq 100 Isn’t All Tech Stocks 

I hear the voice of John Lennon saying, “I wonder if you can.” The Invesco QQQ Trust (QQQ) is so popular that the issuer just decided to put the ticker in the fund name. I don’t know if that was before or after they debuted national television commercials for that single ETF product. 

But when you remove the stocks in QQQ classified as being in the tech sector, it turns out there’s still a lot left. Specifically, a set of 60 stocks collectively sell for 2.3 times trailing sales, less than half that of QQQ. Very strange indeed. 

That’s the current portfolio reflected in the $153 million First Trust NASDAQ-100 ex-Tech Sect ETF (QQXT). And when QQQ fell by 33% during 2022, QQXT declined by only 13%. That is quite a distinction, and one that could be intriguing to investors looking to shield themselves from the worst of the next, inevitable QQQ pullback.  

BOAT: The ETF for Water Transportation

There has been shortage of turmoil surrounding some key global shipping lanes. And as with so many real-world issues that ultimately come down to economics and money, there’s an ETF for that. In the case of the SonicShares™ Global Shipping ETF (BOAT), a $40 million ETF to start this year, it has seen inflows of more than $5 million since the start of January. And it is off to a fast start, up about 5% year to date. BOAT holds about 50 stocks involved in water transportation. 

ZIG: Finding Potential Takeover Targets

The Acquirers ETF (ZIG) is a $42 million active ETF with about 30 holdings and follows the manager’s criteria for what stocks make good potential takeover targets. This involves the “Acquirers Multiple,” which currently produces an equity ETF with a weighted average P/E ratio of only 8.5 times trailing earnings. In a market starving for value stocks whose prices move higher, rather than remain undervalued for extended time periods, ZIG has gained 35% in the past 12 months. 

Finding Hidden Gems With etf.com Data

I could tell you that these types of potential hidden gems are hard to find. But frankly, with a database like the one etf.com provides financial advisors and investors, and some additional effort on the part of the researcher, these types of ETFs are everywhere. That’s what happens when we have 3,400 funds but a small fraction of them gets most of the assets.  

If advisors are willing to be their own ETF research “plumbers,” they can be held in even higher regard by an increasingly savvy non-profession investing crowd.  

To me, that's the beauty of ETFs. They reach hard to find areas of the markets. Yet here they are, hiding in plain sight.