Strange ETFs Investors Need in Their Portfolio

Exchange-Traded Funds That Are Comfortable May Not Be Profitable

Mar 21, 2009

Exchange-traded funds are a great way to capitalize on styles and sectors without committing to an individual stock. But, popular ETFs may not always be profitable ETFs

The proliferation of the exchange-traded fund industry has produced several hundred of these popular products. However, two key challenges have developed as a result of that growth. First, there’s a large degree of overlap among the most popular exchange-traded funds. And second, the common/popular funds may not necessarily offer the most opportunity to investors. Sometimes, the more obscure or unusual ETFs are apt to yield better returns.

Here are a handful of unusual exchange-traded funds many investors have never even heard of, but should probably own at some point – or points - in the future.

SPDR International Small Cap (GWX)

One of the most rewarding arenas available to investors is also one of the most under-represented…. international small cap stocks. The reason? It’s a tough market to analyze. It’s hard enough to get information about small companies as it is. If an investor also has to do so from abroad, it’s almost not worth the effort. An ETF is the easy solution to the problem. Be prepared for volatility, though it’s worth it for most investors.

PowerShares Water Resources (PHO)

The statistics are staggering. Only around 3 percent of the water on earth is fresh water. As the world’s population increases and as more land is turned into manufacturing facilities, that percentage drops. To solve the growing problem, industry analysts estimate $24 billion will needs to be spent on drinking water systems by 2015. These same analysts feel more than $140 billion will need to be invested in sanitation technologies over the next 20 years.

iShares MSCI Emerging Markets (EEM)

iShares offers an ETF for many secondary regions as well, which are somewhat trapped between being an emerging market and a fully-developed market. Some of these countries include the Netherlands, South Africa, and Italy. The ‘Emerging Market’ ETF is an easy way to tap into many of these.

SPDR Dividend ETF (SDY)

If the 2000/2002 bear market taught the lesson, the 2008 debacle should have reinforced it…. there’s a lot to be said for money (cash) in your hand. Not that every stock in the ETF has paid dividends in good times and bad, but investors at least have something to show for their patience – like dividends - when the market gets really ugly.

Van Eck Coal ETF (KOL)

It may be environmentally unpopular, but the advent of clean coal technology is making the natural resource a little more palatable. Plus, each time oil prices surge, coal becomes a little more popular. Investors of the Van Eck Coal ETF enjoy the benefit of a mix of coal mining stocks as well as clean coal technology stocks.

Claymore/MAC Global Solar Energy Index (TAN)

It’s not just science fiction anymore. Utility companies have successfully monetized solar power, even though most of them are on the life support of government subsidies. That’s changing though. Solar power is not ‘ideal’ as of yet (in terms of infrastructure or cost), but these companies will eventually get to that point… and sooner than later.

Final Advice

Though some of these ETFs seem very unique, in a few cases there are actually comparable alternatives. So, focus more on the sectors, regions, or themes than on the exchange-traded funds themselves. Odds are that the comparable ETFs will be equally obscure. However, that obscurity is the key - rarely is it advantageous to invest in the common funds most other investors are buying.

The copyright of the article Strange ETFs Investors Need in Their Portfolio in Shares/Stocks is owned by James Brumley. Permission to republish Strange ETFs Investors Need in Their Portfolio in print or online must be granted by the author in writing.