3 Unique ETFs Beating The Market
With the domestic economy recovering slowly but steadily and interest rates expected to remain low in near future, the overall backdrop for U.S. stocks remains positive. But as the bull market approaches its seven year anniversary, the easy money in stocks has already been made. Global growth worries, lackluster earnings, valuation concerns, China stock market turmoil and uncertainty relating to the Fed will also continue to weigh on the market. It is thus no surprise that the broad market continues to trade sideways with lackluster returns year-to-date. But some stocks have delivered outsized returns this year. Similarly some innovative ETFs following specialized strategies or tracking high growth areas have been rewarding their investors with stellar returns in 2015. Considering their outperformance potential, these could be held as satellite holdings in the portfolio, in order to spice up overall returns. A Shining Biotech Star: The ALPS Medical Breakthroughs ETF (NYSEARCA: SBIO ) Biotechs have been leading the bull market for the last 6-7 years. After this massive surge, valuations look lofty now by many measures, but there are still many reasons to be positive on the sector. Surging M&A activity, positive drug trial results and steady growth in the number of drugs being approved by the FDA have further boosted investor optimism and will continue to support these stocks. This fund tracks the Poliwogg Medical Breakthroughs Index. It invests mainly in mid and small cap stocks with market cap between $200 million and $5 billion. The index screens the U.S. listed biotech and pharma companies with one or more drugs in Phase II or Phase III FDA clinical trials. The index also screens for liquidity (average daily trading volume more than $1 million) and sustainability (cash for at least 2 years at their normal burn rate). Per ALPS, due to “patent cliff”, many blockbuster drugs from the 1990s and 2000s have been losing patent protection and large drug companies are struggling to replenish their pipelines. Further, due to time-consuming procedure and an alarming rate of failure for drug development, the bigger firms usually rely on new therapies processed by smaller firms that spend a lot more on R&D compared to their larger peers. This fund holds 75 stocks with Anacor Pharma (NASDAQ: ANAC ), Receptions and Horizon Pharma being the top 3 holdings. The product charges 50 bps in fees. Company specific risk is limited due to modified market cap weighting with maximum 4.5% of assets. The product launched in December last year and has gathered about $200 million in assets so far. SBIO has soared almost 52% this year. Foil Hackers with the PureFunds ISE Cyber Security ETF (NYSEARCA: HACK ) Our world is becoming increasingly digital-bringing us many exciting opportunities and possibilities–but also creating enormous challenges. Abundance of digital information and sophisticated tools available to process and share this information make it very hard to ensure data security in this interconnected world. That is why cybersecurity threats and cyberattacks are on the rise. Consequences of hacking can be huge. Further, the threat landscape has been evolving; hackers could steal not only financial data but also critical and sensitive information that could be used for criminal or extremist activities. Per Deloitte’s Q2 CFO survey, “CFOs in North America view cyberattacks as a serious threat, but many have doubts about their organization’s level of preparedness.” Surging demand for protection against these cyber threats will continue to drive demand for spending on cybersecurity. This ETF provides exposure to a diverse group of hardware and software companies in the cybersecurity industry. The product charges an expense ratio of 75 basis points. It made its debut in November last year and has already managed to gain almost $1.4 billion in assets, thanks mainly to some high profile cyberattacks of late. The ETF holds 32 securities in its portfolio and is well spread out across holdings, due to modified equal weighting methodology. Investors should however note that some of these cybersecurity stocks have been quite hot lately, leading to valuation concerns but given surging demand for these services, the ETF could be an excellent longer-term holding for investors who can ride out shorter-term volatility. The ETF is up more than 17% year-to-date. 2015 has turned out to be a pretty good year so far for hedge funds after many years of underperformance. Gains this year have been driven partly by the booming M&A activity, particularly in the healthcare sector and savvy stock selection. Most investors would like to invest like George Soros, Carl Icahn and John Paulson but the $2.9 trillion hedge fund industry is accessible only to very wealthy investors. Further, hedge fund investing is expensive as they usually charge an annual asset management fee of 2% and a performance fee of 20% of fund’s profits (2 and 2 fees). Fortunately for ordinary investors, there are some ETFs that provide access to investing secrets of such gurus, without charging the hefty fees that their funds charge. This ETF is based on the AlphaClone Hedge Fund Long/Short Index. The index uses AlphaClone’s proprietary “Clone Score” methodology to aggregate the hedge funds ideas on a quarterly basis. Clone scores, which are calculated bi-annually, are based on hedge funds managers’ performance. Index constituents are equally weighted but can have overlap bias. The index also has a hedge mechanism built in, which is triggered on or off when the S&P 500 index crosses its 200 day moving average at any month end. If the market goes down, the index goes from long-only to market hedged (50% short exposure to S&P 500). Launched in May 2012, this product has been able to attract about $195 million in assets so far. It has 86 holdings currently with Apple (NASDAQ: AAPL ), Valeant Pharmaceuticals (NYSE: VRX ) and Celgene Corp (NASDAQ: CELG ) being the top holdings. ALFA is slightly pricey, charging 95 basis points in expenses. It is up more than 8% year-to-date. Over the past three years, ALFA has climbed by 75% compared with 61% for the SPDR S&P 500 Trust ETF ( SPY). Link to the original post on Zacks.com
