Top 10 Most Overlooked ETFs
December 07, 2012
Worthwhile funds sometimes get overlooked in the hurly-burly of a fast-expanding ETF industry.
The ETF market isn’t always fair. Sometimes, perfectly sound funds don’t get any attention for a number of different reasons.
For instance, a particular fund might not have been the first mover into a niche space. Or, herd mentality causes investors to pile into the most liquid fund, which isn’t always the best choice. Also, funds simply get lost in the sea of 1,400-plus ETFs, and investors may not even know they exist.
Still, there’s a fair share of these types of funds that deserve a shout-out, since they provide either better exposure than their peers, less risk or simply the only exposure to a promising investment theme.
One such fund in this category is the db-X MSCI Japan Currency-Hedged Equity Fund (NYSEArca: DBJP). I recently wrote about why currency-hedged products make sense for investing in Japan. I’m still surprised to see investors continuing to pile into the iShares MSCI Japan Index Fund (NYSEArca: EWJ).
Even investors looking to capitalize on a weakening yen scenario are choosing the $648 million WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ). I’m also a big fan of DXJ, but I’m utterly shocked that DBJP, which is basically a currency-hedged version of the $4.5 billion EWJ, has only $4.8 million in assets under management.
The lack of interest in the iShares MSCI India Index Fund (BATS: INDA) is also a surprise. INDA tracks the exact same index as the iPath MSCI India Index ETN (NYSEArca: INP), but with an expense ratio of 0.65 percent is 24 basis points cheaper than INP. INDA also doesn’t carry the issuer credit risk that the ETN-structured INP carries.
Still, investors have kept their $462 million in assets parked in INP, while INDA is neglected, with under $26 million in assets. I would think that INDA, which physically holds the underlying securities and carries no credit risk, deserves more attention.
What about the SPDR MSCI ACWI IMI ETF (NYSEArca: ACIM), which tracks a more comprehensive version of the same index as the $3 billion iShares MSCI ACWI Index Fund (NYSEArca: ACWI)?
ACIM covers not only large- and midcaps, the way ACWI does, but also includes small-caps, to cover 99 percent of the investable market cap. To boot, ACIM is cheaper by 9 basis points. Still, ACIM only has a measly $5 million in assets.
On the currency front, I can’t neglect to mention the CurrencyShares Chinese Renminbi Trust (NYSEArca: FXCH), which offers investors a “pure play” on the renminbi and is physically backed by 500 yuan per share.
With FXCH, ETF investors can finally own a renminbi ETF that doesn’t make use of forward currency contract exposure. Over the past several years, renminbi forward markets have been pricing in an appreciation in China’s currency, making it difficult for funds using these derivative products to keep pace with the gains in spot rates.
While FXCH holds the Hong Kong-traded renminbi (CNH)—for details, see my previous blog—it’s still a solid play. Yet it idles with fewer than $5 million in assets, while the WisdomTree Dreyfus Chinese Yuan Fund (NYSEArca: CYB) has over $240 million.
One other fund I wanted to mention is the iShares Gold Trust (NYSEArca: IAU). You might be wondering how an $11.9 billion fund is “overlooked.” But if you compare it with the SPDR Gold Shares’ $74.5 billion in AUM, that’s small potatoes.
IAU provides basically the same exposure, at 15 basis points less per year than the cost of GLD. For the average investor who’s not using a liquidity provider, I just don’t see the rationale for choosing GLD over IAU. IAU is also physically backed with gold bars; is structured the same as GLD; and has the same tax consequences.
Finally, there are those funds that offer unique exposure to some promising investment themes, but most investors probably aren’t even aware of their existence.
Immediately coming to mind are the $16 million Market Vectors Unconventional Oil & Gas ETF (NYSEArca: FRAK), the $7 million EGShares Beyond BRICs ETF (NYSEArca: BBRC) as well as the $8 million Market Vectors Russia Small-Cap ETF (NYSEArca: RSXJ).
Here is my list of the top 10 most overlooked ETFs that deserve better.
10. iShares Gold Trust (NYSEArca: IAU)
9. Guggenheim China All-Cap ETF (NYSEArca: YAO)
8. iShares MSCI India Index Fund (BATS: INDA)
7. Market Vectors Unconventional Oil & Gas ETF (NYSEArca: FRAK)
6. EGShares Beyond BRICs ETF (NYSEArca: BBRC)
5. Guggenheim’s BulletShares Suite of investment-grade and high-yield corporate debt ETFs*
4. SPDR MSCI ACWI IMI ETF (NYSEArca: ACIM)
3. iShares MSCI Emerging Markets Small Cap Index Fund (NYSEArca: EEMS)
2. db-X MSCI Japan Currency-Hedged Equity Fund (NYSEArca: DBJP)
1. CurrencyShares Chinese Renminbi Trust (NYSEArca: FXCH)
*The 16 existing BulletShares ETFs trade under the following tickers: (NYSEArca: BSCC), (NYSEArca: BSCD), (NYSEArca: BSCE), (NYSEArca: BSCF), (NYSEArca: BSCG), (NYSEArca: BSCH), (NYSEArca: BSCI), (NYSEArca: BSCJ), (NYSEArca: BSCK), (NYSEArca: BSJC), (NYSEArca: BSJD), (NYSEArca: BSJE), (NYSEArca: BSJF), (NYSEArca: BSJG), (NYSEArca: BSJH), (NYSEArca: BSJI)
At the time this article was written, the author held a long position in DXJ. Contact Dennis Hudachek at email@example.com.