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Equity CEFs: Your Best Market Moves In Closed-End Funds

Summary Equity CEFs have seen a definitive widening of their discounts over the summer despite half the funds I follow outperforming the S&P 500 at the NAV level. Nonetheless, it’s easy to see which funds are working when the markets turn back up and which ones continue to lag behind. The question is – do you stick with what’s worked in the past or should you consider the more heavily discounted CEFs in underperforming sectors that might be turning around? At this point in the market correction, the question that most investors are grappling with, if they want to stay invested in the markets, is whether to stick with the stocks that have worked in the past or do you play a rotation into stocks which have been weak this year and are already in their own bear market? In the world of equity CEFs, the same could be said. There are funds that are seeing great support and seem to bounce back immediately when the markets turn up. And then there are funds that are in a deep freeze and with little to no interest even when the markets turn around. However, based on my research which takes into account market price valuations (discounts and premiums) as well as historic one-year, three-year and five-year NAV performances, not all of the top-performing CEFs present good values now and some of the bottom-performing CEFs offer much better risk/reward despite their poor NAV and market price performances. In my portfolio, it’s best to have exposure to both because despite the urge to go back to what has worked all year, there are signs that a rotation is afoot. Of course, we may be in for a more difficult period all the way around and if that’s the case, then cash is your best alternative. Top-Performing CEFs To Buy And Sell The first step in this analysis is to take a look at the top-performing funds at the NAV level and see which funds may present an opportunity and which funds may be getting ahead of themselves. So here are the top 35 or so equity CEFs out of roughly 100 I follow, sorted by their year-to-date total return NAV performance through September 3, 2015. Funds in green (all of them) have outperformed the S&P 500, as represented by the SPDR S&P 500 Trust (NYSEARCA: SPY ) . YTD, SPY is down -3.9%, including dividends. (click to enlarge) As has been the case most of the year, the healthcare-related equity CEFs are way out in front with the Tekla funds, (NYSE: HQL ) and (NYSE: HQH ), leading the way. However, one top five performing fund that I have been recommending for the past couple years, The Gabelli Healthcare & WellnessRX fund (NYSE: GRX ) , $10.35 market price, 12.06 NAV, -14.2% discount, 5.0% current market yield , has dropped to its widest discount since initiating a regular $0.10/share quarterly distribution back in June of 2012. (click to enlarge) Since initiating the distribution, GRX has raised its distribution twice to $0.12/share in 2014 and then to $0.13/share in 2015 (5.0% annualized) all the while distributing significant capital gains each year as well. And yet none of this seems to help GRX’s market price despite a NAV that has outperformed the Nasdaq-100 since 2012. That’s right, GRX’s NAV has outperformed the NASDAQ-100 index, 93.6% to 91.3% since December 31, 2011. And if investors would only stop and think that this fund also has been yielding over 10% each year going back to 2012, if you included all distributions and capital gains, then maybe they would treat GRX with a little more respect than a -14.2% discount, one of the widest of all CEFs. As it is, you can pick up one of the best-performing CEFs at the NAV level and receive a windfall 5% current market yield (windfall means you get a higher market yield than the fund is paying on its NAV). And, in case you think GRX is only about healthcare and thus may be too sector-specific, the wellness and nutrition part of the fund’s investment strategy means that half its equity portfolio is actually in consumer staple names, mostly foods. This is why I picked GRX as a must-own fund because you can take a relatively large position in it knowing that you have diversification beyond just biotech, healthcare providers, healthcare equipment and other healthcare services. Oh, and a final note on GRX. Five months ago in early April I wrote this article, The Insanity Of CEF Investors , in which I said that it wouldn’t be long before GRX’s NAV would overtake the PIMCO Global Stocks Plus & Income fund’s (NYSE: PGP ) NAV, despite the fact that PGP traded at a market price over twice that of GRX at the time (PGP has since dropped from $22.83 to a current $16.77). Note: See above for PGP’s position in the table. And how has that prediction turned out? Today, GRX’s NAV is $12.06 while PGP’s NAV is $11.74 and I don’t think GRX will ever look back. So I ask you, does nobody get this? Does nobody understand that a fund’s distribution comes from its NAV and, if the NAV is eroding, then an outsized distribution becomes a heavier and heavier ball and chain, further eroding the NAV? It’s just amazing that investors don’t get this and they continue to buy funds (not just PGP) at premium valuations that are seeing continuous NAV erosion over the years. Time To Rebalance The Eaton Vance Option Income Funds By far the best performing option income funds this year at the NAV and market price levels have been from Eaton Vance. This has actually been going on for the last couple years and for those readers who took my advice beginning in 2011 and loaded up on these funds when they were at up to -16% discount, it has been a great ride. Looking back at the table above, five out of the top 20 funds are from Eaton Vance and their market price performances have, for the most part, been even better. However, their popularity has gotten so widespread that one fund, the Eaton Vance Tax-Managed Buy/Write fund (NYSE: ETB ) , $15.98 market price, $15.24 NAV, 4.9% premium, 8.1% current market yield , has moved solidly into an overvaluation position based on its premium market price of 4.9%. A premium market price wouldn’t necessarily trigger a sell recommendation, but compared to most of the other Eaton Vance option income funds, ETB has a lagging NAV as well as one of the lowest yields of all the Eaton Vance funds. In other words, it would make a lot more sense to swap out of ETB at a 4.9% premium and into a couple other Eaton Vance’s option income funds at much lower valuations, higher yields and better NAV performances. The ones I would recommend are the Eaton Vance Tax-Managed Diversified Equity Income fund (NYSE: ETY ) , $10.87 market price, $11.61 NAV, -6.4% discount, 9.3% current market yield, or the Eaton Vance Enhanced Equity Income fund II (NYSE: EOS ) , $13.12 market price, $13.99 NAV, -6.2% discount, 8.0% current market yield . I would also consider (NYSE: ETV ) and (NYSE: ETW ) as swap-into candidates, but they also trade at narrower discounts. The Eaton Vance option income funds get a lot of buy interest when the markets rebound, primarily because they all own many of the same high-flying technology names that institutions like to pile into when the markets turn up. Names like Apple (NASDAQ: AAPL ) , Amazon (NASDAQ: AMZN ) , Facebook (NASDAQ: FB ) , Google (NASDAQ: GOOG ) (NASDAQ: GOOGL ) and Priceline (NASDAQ: PCLN ) are among many of the Eaton Vance option fund’s top holdings. However, if these Nasdaq generals fall out of favor, then you can expect that the more richly valued Eaton Vance option income funds will probably see their discounts widen as well, especially when you consider that most other equity CEFs have fallen to double digit discounts in this market environment. Other Equity CEFs With Strong Buy Interest The Eaton Vance option income funds aren’t the only funds I’ve noticed that get a lot of buy interest when the markets turn up. One fund that shows up in the top 20 list above is the BlackRock Enhanced Capital And Income fund (NYSE: CII ) , $13.86 market price, $14.89 NAV, -6.9% discount, 8.7% current market yield . This is quite a change for CII, a fund you couldn’t give away when it was cutting its distribution not that long ago. And finally, one global fund, the Voya Global Advantage And Premium Opportunity fund (NYSE: IGA ) , $11.07 market price, $11.88 NAV, -6.8% discount, 10.1% current market yield , also appears to catch a bid when the markets firm. I would keep my eye on all of these funds when the inevitable bounce occurs after a market sell-off. CEFs Which Could Benefit In a Rotation Though the trend has been to buy the historically strong stocks and funds when the markets turn up, I’ve noticed that there seems to be less conviction each time that occurs now. At the same time, some of the down and out stocks/funds that used to be in free fall seem to be holding up better on each downturn. If that’s the case, then it may be time to include some of the more severe laggards in equity CEFs as the selling pressure abates. Most of these are in the commodity sectors, particularly energy and energy MLPs, but they also represent a number of utility funds as well. The following list of equity CEFs represents the bottom 35 or so funds that have seen their NAVs lag the most this year. All of these funds show red NAV total return performances, that is they lag the SPY’s -3.9% total return. (click to enlarge) The one fund that jumps out at me that has historically been one of the best performing CEFs over the years is the Cohen & Steers Infrastructure fund (NYSE: UTF ) , $19.20 market price, $23.15 NAV, -17.1% discount, 8.3% current market yield . At an unbelievable -17.1% discount, UTF is a great fund that has gotten caught up in the downdraft of the global utility and infrastructure stock sectors despite showing superb NAV total return performance on a longer three-year and five-year term basis. Surprisingly, UTF is one of the more volatile funds despite its large market cap (for a CEF) at almost $2.8 billion, $2 billion of which is in net assets. Just to show you where a -17.1% discount ranks, that would put UTF in the bottom 20 equity CEFs with the widest discounts, joining most of the emerging market and emerging market debt CEFs. That is a ridiculous discount for a fund with a track record as strong as UTF’s. Since 2012, UTF’s NAV is up a very impressive 58.5% even including this year’s -7.1% drop. So don’t confuse a utility and infrastructure CEF like UTF as being boring. Leverage can turbo charge UTF’s portfolio of global utility stocks and the fund can see strong NAV and market price performance as much on the way up as on the way down. In fact, UTF raised its distribution from $0.37/share to $0.40/share earlier this year after a great 2013 and 2014, and combined with that extreme discount you can get a windfall 8.3% current market yield on a fund that only has to support a 6.9% NAV yield. Now that is attractive. When I see the crap CEFs that can trade at premium valuations that have historically destroyed their NAVs, you just wonder what someone is thinking when they sell UTF at a -17%-plus discount. Of course, that’s just it…most don’t know that they’re selling a fund around $19 that has a liquidation value of around $23. A Utility and Energy MLP CEF On Its Knees Another equity CEF that doesn’t make a lot of sense to me despite having a very weak NAV performance so far this year is the Duff & Phelps Global Utility Income fund (NYSE: DPG ) , $16.05 market price, $19.01 NAV, -15.6% discount, 8.7% current market yield . The reason why it doesn’t make a lot of sense is that a similar CEF from Duff & Phelps , the DNP Select Income fund (NYSE: DNP ) , can trade at over a 15% market price premium, despite having a lot of overlap with DPG in its utility holdings. The major difference between the two funds is that DPG has a larger exposure to energy MLPs (33% vs 14% for DNP) while DNP includes about 15% of its portfolio in fixed income corporate bonds of utility companies. DPG also is more global than DNP but why this would account for over a 30% valuation difference between the two funds is a head scratcher. I first wrote about DPG two years ago in September of 2013 in this article, Terrific Opportunity In A Duff & Phelps Utility Fund . At the time, DPG was trading at a -13.3% discount ($18.22 market price, $21.01 NAV) while DNP was trading at a 10.9% premium, so the valuation difference has just widened since then. Certainly, DNP has the longer track record and perhaps has a less volatile NAV than DPG due primarily to its corporate bond exposure, but there is no question that DPG’s portfolio managers use the same research and analysis as DNP’s portfolio managers when they select utility stocks for their fund’s portfolios. So if you owned DNP at a premium valuation and you knew you are not even getting close to the market yield at 8.1% that the fund has to support at a 9.3% NAV yield, wouldn’t it make sense to go into the other fund and get a higher windfall 8.7% market yield when DPG only has to support a 7.4% NAV yield? I would. Obviously, both funds have seen serious NAV depreciation this year but it’s certainly going to be a lot easier for a fund to support a 7.4% NAV yield than a 9.3% NAV yield. And though DPG’s NAV is down -17.5% on a total return basis YTD and a sobering -20.5% on a pure NAV depreciation basis, i.e. not including distributions, the fund’s NAV is still roughly where it came public back in 2011 at $19.07 even after paying $5.60 in total distributions. In other words, there is little danger of DPG cutting its distribution anytime soon unless the global utility sector goes into a deeper bear market than it’s already in. DPG goes ex-dividend on September 11th at a $0.35/share. Both funds use leverage in their high yielding utility, telecommunications, energy MLP and corporate bond portfolios. The one sector I would keep an eye on is the energy MLP sector. After the collapse energy MLP’s have suffered this year, if there is any indication that sector is firming up, which arguably we are seeing already, then I believe that will be your sign that it is safe to go into DPG. At a -15.6% discount, DPG’s market price has priced in far worse than a bear market already. Conclusion Do you stick with what’s worked in the past or do you try and bottom fish? I believe you should be looking at both if you want to up your equity CEF exposure (and income) in the markets right now. So to summarize, here are the funds that have been working this year and should bounce when the markets rebound: GRX – Gabelli Healthcare & WellnessRX fund ETY – Eaton Vance Tax-Managed Diversified Equity Income fund EOS – Eaton Vance Enhanced Equity Income fund II CII – BlackRock Enhanced Capital And Income fund IGA – Voya Global Advantage And Premium Opportunity fund Note: I would be swapping ou t of ETB. And here are the funds I believe present the best risk/reward based on a rotation to underperforming sectors: UTF – Cohen & Steers Infrastructure fund DPG – Duff & Phelps Global Utility Income fund Disclosure: I am/we are long GRX, ETY, EOS, CII, IGA, UTF, DPG. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

VYM: High-Quality Dividend Investing To Mitigate Volatility In Uncertain Markets

Summary The dividend space offers many long quality attributes: decreased volatility, healthy yields, moderate risk and a hedge against downside risk in the face of uncertain market. High-quality dividend investing often gives rise to share buybacks, rendering an effective way to further drive shareholder value via returning capital to shareholders by repurchasing stock. VYM has outperformed the S&P 500 in past two down markets in 2008 and 2011 by 4.9% and 8.4%, respectively. VYM has more than doubled its dividend payouts over the past 5 years giving rise to a superior cash flow and yields. Introduction: Dividend investing lacks trading excitement when compared to high-flying stocks such as Netflix (NASDAQ: NFLX ), Facebook (NASDAQ: FB ) or Amazon (NASDAQ: AMZN ) or sectors on a whole such as the biotechnology sector. Despite this lack of excitement, when considering the long attributes the dividend space offers, such as decreased volatility, healthy yields, moderate risk exposure and a hedge against downside risk, it may be an ideal synergy for any long portfolio. This is exemplified as the markets have been highly volatile due to weakness in China, an imminent fed rate hike and persistently low oil prices. Historically, companies that have an established track record of not only paying dividends but growing their dividends over the long-term have generally outperformed the their respective index with decreased volatility. I will be utilizing the Vanguard High Dividend Yield ETF (NYSEARCA: VYM ) as a proxy for a high-quality cohort of large-cap centric dividend paying stocks. This type of dividend portfolio may prove to be a meaningful piece of an overall growth retirement strategy while providing a reasonable level of income and mitigating risk. The allocation within VYM offers a broad dividend paying portfolio and access to all sectors throughout the large-cap space without sacrificing diversification and in turn can generate sustained long-term growth and income while navigating volatile markets. Mitigating risk and volatility with a high-quality cohort of dividend paying stocks: VYM is composed of high yielding dividend-paying large-cap companies and weighted by market capitalization. This domestically focused dividend paying ETF provides access to some of the biggest names across many different sectors that provide a healthy dividend yield, equity appreciation, diversification and decreased volatility. These domestically centric companies may provide additional protection when largely extraneous events are impacting U.S. markets. The top 10 holdings consist of high-quality companies: Exxon Mobile (NYSE: XOM ), Microsoft (NASDAQ: MSFT ), Johnson & Johnson (NYSE: JNJ ), Wells Fargo (NYSE: WFC ), General Electric (NYSE: GE ), Proctor & Gamble (NYSE: PG ), JPMorgan Chase (NYSE: JPM ), Pfizer (NYSE: PFE ), AT&T (NYSE: T ) and Verizon Communications (NYSE: VZ ). These top 10 holdings make up roughly 30% of the portfolio by weight and covers technology, energy, healthcare, industrials, financial and consumer defensive. The vast majority of companies that comprise the ETF portfolio are large-cap companies spanning value, blend and growth. Large value and blend categories account for roughly 75% of the portfolio holdings. Outside of these top 10 holdings, high-quality companies reside in market capitalization weighted proportions across a broad range sectors in its top 25 holdings (Figure 1). (click to enlarge) Figure 1 – Morningstar top 25 dividend paying holdings for VYM Decreased volatility and outperformance during bear markets: As a consequence of its high-quality dividend paying centric portfolio, the ETF has a majority of its holdings in more robust and financially stable companies that are the least impacted during economic turbulence domestically and abroad. The ETF specifically focuses on large-value companies within consumer defensive, health care and utilities. The weighted allocation within VYM that is dedicated to consumer defensive, health care and utilities is 14.7%, 12.4%, 7.7%, respectively. This defensive position equates to approximately 35% of the portfolio by weight (Figure 2). In terms of performance throughout bear markets, VYM has outperformed the S&P 500 in 2008 and 2011 by 4.9% and 8.4%, on an annualized basis respectively (Figure 2). These data exemplify the risk mitigation that is commonly intrinsic throughout large cohort of high-quality dividend paying stocks. (click to enlarge) Figure 2 – Morningstar sector breakdown of VYM (click to enlarge) Figure 3 – Morningstar annual returns of VYM relative to the S&P 500 index The potential duel synergy of dividends and share buybacks: Many of the companies within the VYM portfolio not only offer a dividend but also reward shareholders via share buybacks. Share buybacks can serve as an effective way to drive shareholder value via returning capital by repurchasing its own stock. I’ll discuss this dual synergy in greater detail in my part 2 of navigating volatile markets covering companies that engage in share buybacks. In brief, theoretically, repurchasing and retiring shares satisfies many pro-shareholder objectives: Reducing the number of shares tilts the supply and demand curve thereby removing shares will decrease supply and in turn increase demand and drive the share price higher. Earnings per share increase since earnings are now divided over fewer shares. If share buybacks are coupled with a dividend, the dividend yield may increase as long as the aggregate quarterly payout amount remains unchanged and as a result the payout will be divided over fewer shares. Microsoft and Wells Fargo are great examples of stocks within the ETF that reward shareholders with dividends and share buybacks. A number of constituents within the ETF help to drive share value with share buybacks while the aggregate holdings payout a dividend yield of 2.8% to augment total return. VYM provides a competitive yield to augment the growth component of the ETF, thus appears to be attractive as a potential candidate for any long portfolio. Established track record in dividend payouts and dividend increases to augment total return: VYM boasts an impressive dividend yield, currently greater than 3% which rivals the majority of high-quality dividend paying stocks. This can be a very effective residual payout to augment total return when reinvesting the dividend distributions over time. Many companies within the ETF have a well-established track record in dividend payouts and dividend growth over time. Bristol-Myers Squibb Co (NYSE: BMY ), AT&T, Verizon, Coca-Cola (NYSE: KO ) and Phillip Morris (NYSE: PM ) are just a few examples of companies within VYM that have regularly increased their dividend payout over the last 15 years. Taken together, this ETF portfolio is comprised of high-quality constituents that have a proven track record of consistent dividend payments and dividend growth. These two attributes can make a meaningful impact as part of any overall long portfolio strategy. Overall, the dividend payout per share of VYM on a quarterly basis has increased from $0.23 in March of 2010 to $0.56 in June of 2015 an increase of over 140% in dividend payouts (Figure 4). (click to enlarge) Figure 4 – Google Finance dividend distributions and cumulative returns over the previous 5 years VYM has yet to differentiate itself in the choppy market of 2015 Despite the mitigation attribute, VYM has not outperformed the broader indices (Figure 5). This may be attributable to its allocation in oil related stocks such as Exxon Mobil, Chevron (NYSE: CVX ), ConocoPhillips (NYSE: COP ), Valero Energy (NYSE: VLO ) and other energy and industrial related holdings. These sectors have been plummeted over the past six months along side the decrease in oil. This has been exacerbated by the strong dollar and weakness abroad for many international companies that reside in this ETF. Once the global economy regains its footing and the dollar normalizes against a basket of currencies, this ETF will likely regain its historical quality attributes of volatility and risk mitigation. (click to enlarge) Figure 5 – Morningstar annualized performance of VYM relative to the S&P 500 and Morningstar’s large value Summary: VYM makes a compelling case for the risk-adverse investor seeking long-term growth and income from a cohort high-quality dividend paying companies. VYM has an expense ratio of 0.10% and a dividend yield of greater than 3%, thus offering access to a high-quality ETF with a healthy rate of return and minimal risk at a very low cost. The mitigating risk aspect is exemplified during bear markets where VYM outperformed the S&P 500 4.9% and 8.4%, respectively in 2008 and 2014. VYM provides a compelling investment opportunity for investors seeking diversity across the large-cap space while mitigating risk and attaining a high yield and overall equity appreciation. Disclosure: The author currently holds shares of CVS (NYSE: CVS ), UnitedHealth (NYSE: UNH ), Target (NYSE: TGT ), Nike (NYSE: NKE ), Home Depot (NYSE: HD ) and Wells Fargo and is long all of these holdings. The author has no business relationship with any companies mentioned in this article. I am not a professional financial advisor or tax professional. I wrote this article myself and it reflects my own opinions. This article is not intended to be a recommendation to buy or sell any stock or ETF mentioned. I am an individual investor who analyzes investment strategies and disseminates my analyses. I encourage all investors to conduct their own research and due diligence prior to investing. Please feel free to comment and provide feedback, I value all responses. Disclosure: I am/we are long CVS, UNH, NKE, TGT, WFC, HD. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Debunking The Misleading Big Data ETF

PureFunds introduces new big data-focused ETF, tracking the ISE big data index. A deeper look at the index reveals social media networks, credit data providers, and Internet companies in the ETFs’ top holdings. Investors should look under the hood of non-trivial sector-focused ETFs. ETF provider PureFunds is a relatively new player in the ETF market, competing fiercely with financial giants that dominate the ETF market, like Vanguard, Blackrock’s (NYSE: BLK ) iShares, State Street’s (NYSE: STT ) SPDR, etc. PureFunds is familiar to most investors as the provider of the Cyber Security ETF (NYSEARCA: HACK ) that was launched in November 2014, which attempts to provide a passive investment vehicle into the emerging cybersecurity market. Since its inception, HACK yielded a 10% return, providing a modest return for the $1.1B in net assets that were invested in the ETF. As shown in Chart 1 below, HACK’s return is much lower than the leading cyber security stocks, but it also offers a passive investment vehicle into the industry that allows investors to invest in this emerging industry without cherry-picking particular stocks. Since PureFunds introduced the HACK ETF, the firm released three more ETFs: the PureFunds ISE Junior Silver ETF (NYSEARCA: SILJ ), the PureFunds ISE Mobile Payments ETF ( IPAY ), and the PureFunds ISE Big Data ETF ( BDAT ). As a strong believer in the growth potential of the big data industry and its leading players, I cover many big data topics, both in Seeking Alpha and in my firm, from industry trends through earnings reviews to extensive long/short investment thesis and ad-hoc analyses. There are so many public companies involved in the big data industry including analytics, visualization, Hadoop integration, and IaaS/PaaS services that I was pretty excited when I first heard of Purefunds Big Data ETF. However, as the title implies, I was very disappointed by the outcome. The general idea of Purefunds to launch investment vehicles that invest in emerging sectors, such as big data, mobile payments, and cyber security, is great, and I think there is a demand for such vehicles. However, an ETF is a passive investment tool that tracks a third party index – in BDAT’s case, it is the ISE Big Data™ Index. Looking at the component eligibility requirements in the index methodology guide unveils a wider definition of a big data company as shown in the excerpt below. According to the document, there are two types of companies that are entitled to join the index: either a big data product developer/service provider or a company that aggregates massive data sets. While the first part makes sense-this is a big-data index and should include big-data companies-the second part (bullet ii above) basically paves the way for any large Internet company to join the index, whether it has some connection to the big-data market or not. Let’s look at ETF’s top 10 holdings, as presented below in an excerpt from the fact sheet, and see how many big-data companies are there. Out of the top 10 holdings, five companies have very weak links to the big-data industry and are included in the ETF just because of bullet point ii above-Facebook (NASDAQ: FB ), Twitter (NYSE: TWTR ), Thomson Reuters (NYSE: TRI ), Nielsen (NYSE: NLSN ), and Yahoo (NASDAQ: YHOO )-while the other five have stronger links to big data, but it is absolutely not their core business nor the main impact on their financials. Going down the list of holdings (31 in total) will also reveal LinkedIn (NYSE: LNKD ) and Dun & Bradstreet (NYSE: DNB ), which also have a weak link to the big-data industry. I agree that it might be difficult to find 30 companies that are big data focused, but if the criteria are widened, I believe Amazon (NASDAQ: AMZN ), Rackspace (NYSE: RAX ), and EMC (NYSE: EMC ) will be found to have more to do with big data than the social media companies introduced in the index and ETF. In my opinion, this is a big deal. A big data ETF should include big data pure-play companies or companies that directly relate to that industry; having Facebook and Twitter in the top 10 holdings is missing the point. If ISE and PureFunds couldn’t find enough suitable companies to be included in the big data ETF, I would have suggested for them to include prominent SaaS, IaaS, and PaaS providers, rather than social media networks and credit/business data providers, as they have stronger links to the industry and are strongly impacted by it. For now, as BDAT does not provide pure big data exposure, I suggest investors to avoid using this ETF as an investment vehicle into the big data industry. Once PureFunds/ ISE have adjusted their ETF holdings/Index criteria, I will revise the avoid recommendation above, and if another big data ETF is introduced, I will perform the same due diligence again. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: The information provided in this article is for informational purposes only and should not be regarded as investment advice or a recommendation regarding any particular security or course of action. This information is the writer’s opinion about the companies mentioned in the article. Investors should conduct their due diligence and consult with a registered financial adviser before making any investment decision. Lior Ronen and Finro are not registered financial advisers and shall not have any liability for any damages of any kind whatsoever relating to this material. By accepting this material, you acknowledge, understand and accept the foregoing.