Either way here is the list as I had it in the file;
Commodities
Industrial Metals ETF
Energy ETF (access to brent)
Commodities ETF based on Dow Jones AIG Commodities
Global Timber
Uranium
Platinum
Fixed Income
Master Limited Partnerships
Preferred Securities
Floating Rate Notes
INTL bond
Muni bond ETF
ETFs of bond CEFs
High Yield Bonds
Emerging Market Bonds
Yield curve plays
Miscellaneous Ideas
Yen ETF
VIX
International REITs
U.S. Residential Housing (long and short)
A couple of intelligent groupings of the next BRICs IE N-11
Themes: Outsourcing ETF, Vice, Tortoise vs. Hare, Art and collectibles, weapon manufacturers
More equal weight
Narrow sector and sub sectors
More single country India 11 Russia Eastern Europe Mid East Africa Nordics Ireland
A broader global fund
Dividend ETFs with better sector diversification
Hedge Fund indices
Buy write ETFs
ETF of ETFs
International Small Cap Value ETF (truly small cap, truly value)
International MicroCap ETF
Almost all of these have come into existence and I would say in certain segments the number of funds now available exceeds the general expectations from 2006. There are maybe a dozen VIX related products and MLP products which may not be good things but they do exist.
It is also possible that the number of country funds and thematic funds also exceeds the general expectation from back then as well.
Narrow funds get picked on by many different people in all parts of the industry as being unnecessary, speculative or otherwise unsuitable for everyone. I've said countless times that the logic that narrow funds should not exist is simply idiotic. First of all some participants do speculate and plenty more use individual stocks to build a portfolio (a fact that often is forgotten). Would it be wildly reckless for anyone to own Alcoa (AA)? If not then it would not be wildly reckless for anyone to own the Global X Aluminum ETF (ALUM). I want no part of this niche which is why I chose the example. Someone could assess the fundamental story of the aluminum space decide they want to buy and then weigh the merits of various choices including one of the largest names in the space and a fund that focuses on the space.Some funds of course end up being of little to no use to the market for whatever reason and those funds end up closing. I imagine that the China Carpet ETF might have a tough time catching on and the market will sort that out as new funds come. I found a company called Tai Ping Carpets which trades very thinly in Hong Kong but does have a five letter US designator; TACPF.
Clearly no investor will make use of too many funds; if there are 1000 funds it is not like someone can realistically make use of 100 of them or even 50. I'd be surprised if too many individuals or RIAs would have use for 20 ETFs. We use in the neighborhood of ten for the equity portion of client portfolios (including GLD) and two or three for fixed income. Those numbers for us mean very little as I would use more or fewer depending on where the portfolio goes.
If you go narrower than SPY/EFA/IWM then you should make informed decisions for each segment based on the available choices and consistent with your ability to analyze the choices, spend time monitoring the holding and your comfort level with things like trading volume.
That leaves us to ponder what else will come in the future now that we have a fishery ETF. No surprise, I would like to see a global cement ETF, some sort of toll road/air port/seaport fund (the yield could be very high), a Nordic bank ETF, a Chilean debt ETF and a few others. What ideas do you have?
6 comments:
You make a good argument, but many of these will be thinly traded, what are the added fees? Many will close causing tax consequences at unexpected times.
I don't know what you mean by added fees. There is probably a commission to buy and there is the expense ratio.
Presumably you would buy a niche fund because that was the best choice for you for some reason. Would the possibility of it closing at some point in the future cause you to buy what you thought was an inferior choice? If yes then you should avoid narrow funds, if not then you should consider them.
A newly privatized company ETF and a public transportation ETF would be interesting. All of the developing countries (eg ex-USSR) will likely have their state-run monopolies go private at some point, and if oil stays high enough luxury buses, trams and trains could conceivably be an alternative to sitting in endless traffic and .
paying for all the gas you're using.
The reason I dislike public transport is because of the environment and the people around you. Being stuffed into a subway when I could be paying twice the amount for breathing my own air, having my own seat and and listening to my own music seems like a no-brainer. If it means I have to book in advance for my seat, using my phone, and pay more I'd think very seriously about sharing a 'comfort bus'.
I agree 100% with the idea that sector specific or niche ETF carries no more risk than investing in a single stock. Although it is inherently speculative, I do feel safer with the diversity an ETF can provide within a space I like.
Global X just released a Waste and recycling(WSTE)fund. I think the recycling business will be very interesting going forward. This fund seems to be heavily waited US, mega cap. something focused on the recycle of industrial metals and electronics would be interesting, Asia and Latin America.
Some other interesting areas could be LNG (gas/de-gas terminals and shipping),nat gas piplines, domestic and international RailRoads.
I have also been thinking a lot about Brazilian infrastructure lately. In preperation for the world cup and Olympics, a lot of money is being spent in Rio. BRXX is available, but maybe an ETF that captured smaller and mid-sized contruction and material firms.
Thanks for the great topic Roger, it gets my research juices flowing.
ETFs have certainly come a long way the past five years. I tend to agree with the views of some commnets today that thinly traded ETFs may be parsing the retail investor's diversification a bit too much. There are plenty to select from that are actively traded with a penny or two spread bid/ask encompassing assets over $75 million.
I enjoyed watching Killebrew play when the Senators/Twins were at Comiskey Park back in the days of my youth. A (rich) uncle had box seats first row upper deck over third base. My cousin and I were at the game with him when Killebrew fouled one off Billy Pierce. He caught it in his beer cup, dousing the cousin but missing me. You don't forget those moments.
T
great story T
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