There is a deeply flawed school of thought prominent in the world of exchange-traded products and it applies directly to new ETFs and ETNs. Many investors believe they should wait for new funds to mature before getting involved.
"Mature" means wait for a new ETF to gain assets and sufficient average daily trading volume, though neither metric has ever been scientifically linked to an ETF's total returns.
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Think about that for a moment. By waiting for Investor A to get commit capital to a new ETF, Investor B is succumbing to the same follow-the-herd mentality that has doomed market participants for years.
Here is real world example of what can happen when investors play the waiting game with new ETFs and by "new," it is funds that are less than a year old that are being referred to. The PowerShares S&P 500 High Dividend Portfolio (NYSE:SPHD) debuted on October 18, 2012.
Although SPHD has yet to reach the overrated $100 million in assets under management threshold, volume is decent at over 60,000 shares per day and only once during the fourth quarter did the midpoint on SPHD's bid/ask spread exceed 50 basis points above the ETF's net asset value. Since its debut, SPHD has gained nearly seven percent and has delivered four dividend payments (it pays a monthly dividend) totaling about 41.5 cents per share.
To be fair, not all new ETFs merit investors' consideration, but not all of these funds should be ignored, either. At least not simply because they are new. The following rookie ETFs are worth looking at right now and all of them debuted this year.
PIMCO Foreign Currency Strategy ETF (NYSE:FORX) The PIMCO name certainly helps and that is perhaps one reason why the PIMCO Foreign Currency Strategy ETF is off to an impressive start having attracted $26.6 million in AUM in just over a month of trading. FORX is an actively managed ETF, meaning investors will pay up a bit for the privilege of PIMCO management, though an expense ratio of 0.65 percent is decent among actively managed products.
FORX invests "in currencies, currency forwards, or fixed income securities denominated in the currencies of foreign (non-U.S.) countries" and "intends to limit its exposure to any one currency to 20% and to maintain a portfolio duration between zero and three years," according to PIMCO.
What is attractive about FORX is its allocations to countries that have not engaged in currency debasement via monetary easing. For example, Canada, Norway, Australia and New Zealand combine for nearly 39 percent of the new ETF's weight.
Global X SuperDividend U.S. ETF (NYSE:DIV) This one will really get the naysayers going because the Global X SuperDividend U.S. ETF is not even a week old. However, DIV is not offering up an opaque concept that warrants a wait-and-see approach. Rather, the new fund is quite straight forward.
Home to 50 stocks that are almost equally weighted, DIV is the U.S. complement to the successful Global X SuperDividend ETF (NYSE:SDIV). SDIV crossed the $100 million AUM level in August and has since more than quadrupled that total. For a moment, think about what would have happened if an investor was thinking about buying SDIV in May 2012 and declined in the essence of waiting for the ETF to reach $100 million in assets.
That investor's entry point was about 10 percent and he missed out on three months of dividends because SDIV pays a monthly dividend. There are no guarantees DIV will follow a same trajectory, but Global X does expect DIV will pay a monthly dividend. Investors can take comfort in the fact that DIV is home to plenty of familiar, low-beta names such as Dow components AT&T (NYSE:T), Merck (NYSE:MRK) and Verizon (NYSE:VZ).
WisdomTree Global Corporate Bond Fund (NASDAQ:GLCB) For the investor looking for a complement to or a yield above that of the iShares iBoxx $ Investment Grade Corporate Bond Fund (NYSE:LQD), the newly minted WisdomTree Global Corporate Bond Fund is a credible option.
GLCB debuted at the end of January and should not be viewed as a high-risk version of LQD. U.S. issues account for almost 52 percent of the new ETF's weight and half the holdings are rated A or AA with another 21.7 percent garnering a BBB rating. Overall, GLCB offers exposure to 15 countries, including four emerging markets.
GLCB's effective duration if 5.54 years with an embedded income yield of 3.72 percent, according to WisdomTree data. The ETF's 30-day SEC yield is 35 basis points higher than LQD's.
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