ETFs are a cheap way to invest in the securities market to gain exposure to a different variety of stocks, bonds and commodities. Investors looking to invest in a specific country can do so by buying an ETF which tracks the price performance of that market. Commodity ETFs are a convenient and sometimes the only way to invest in a commodity.
It is almost impossible for investors bullish on natural gas to buy and store natural gas, but they can easily invest in United States Natural Gas Fund, LP (NYSEARCA:UNG), which gives them a direct exposure the natural gas price movements. Most ETFs also work using passive management techniques in which they track the performance of an index without actively trying to pick and choose specific stocks. This not only lowers the expense ratio but also provides an unbiased investment instrument for investors. Having said that, we have compiled a list of four cheapest ETFs across different asset classes, which also enjoyed some support from the smart money investors tracked by us.
Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details).
United States Natural Gas Fund, LP (NYSEARCA:UNG) is an ETF that tracks the movement of natural gas price in the USA. It achieves this objective by buying the near month futures of natural gas trading on the Henry Hub. Since the future price differs from the spot price, United States Natural Gas Fund, LP (NYSEARCA: UNG) does not track the change in the natural gas price exactly. There is also some leakage costs due to rollover in future contracts besides fund expenses. However, this is the most liquid and cheap way for an investor to get access to buying natural gas in the form of a financial security. The number of funds from our database holding this ETF declined to five from seven during the second and the total value of their holdings also went down by 60% to $13 million. Equity investors also do not have to worry about opening a futures commodity account and rolling the contracts, as UNG performs these functions. Though UNG has shown an overall loss of 23% over the last five years, its performance in the last one year has been quite good returning over 12%. With natural gas prices still stuck in a historically low band, investors might find it worthwhile to invest in UNG as natural gas is the cleanest among all fossil fuels.
Sprott Physical Silver Trust ETV (NYSEARCA:PSLV) is a commodity ETF that tracks the price of silver. Most of the fund holdings are in the form of silver bullion which is stored at a secure third party location in Canada. Sprott Physical Silver Trust ETV (NYSEARCA:PSLV) trades both in Canada and USA and its special feature is that you can redeem this ETF securities for silver bullion. The main utility of this ETF is that it provides a convenient, low-cost and secure way to invest in silver without actually buying and storing actual silver. The management fee is also quite low at 0.45% and it periodically gets the bullion audited by the Big 4 auditor Ernst & Young. It is currently trading at $6.74 which is the midpoint of its 52-week price range. Silver is expected to do well going forward as global interest rates remain stuck at a historical low. This is reflected in the value of holdings of investors from our database, which appreciated by a whopping 382% to $7.9 million during the second quarter, while the number of investors holding shares of ETF also increased by two to four. Besides being a store of value, silver also finds usage as an important industrial metal. Silver is currently priced at approximately $17.7 per ounce which is almost 40% lower than its price level of $30 it traded during 2012.
Advent Claymore Convertible Securities and Income Fund Ii (NYSE:AGC) is a diversified close ended fund which invests in convertible securities and income generating non-convertible securities. The fund invests in both investment grade and non-investment grade securities and buys securities issued both by USA and non-USA issuers. Another distinctive feature of this fund is that it leverages its assets to increase the returns for investors. This fund manages assets worth more than $362 million and has a distribution rate of 9.95%. The value of positions in this ETF held by investors from our database increased by $2.5 million to $21 million during the June quarter, while the number of funds remained unchanged at three. AGC is currently trading at a discount of 13% to its NAV which makes it quite cheap for investors. The fund has returned more than 12% over the last year and has generated solid return over the last five years. Though the expense ratio is not cheap at 2%, active management of this leveraged portfolio requires higher expenses than your typical ETF.
Global X MSCI Greece ETF (NYSEARCA:GREK) is an ETF which tracks the performance of the Greek stock market. The ETF holds securities present in the MSCI All Greece Select 25/50 Index. It is the only ETF that provides exposure to the Greek stocks for USA investors. It holds a large diversified basket of large and liquid Greek stocks. Though GREK’s performance has been disastrous over the last five years as can be deduced from the economic turmoil in the country, the silver lining is the extremely cheap valuation of this ETF. Among the funds we track, two funds held shares of GREK at the end of June, compared to one a quarter earlier. However, the aggregate value of these funds’ holdings slid by 30% on the quarter to $1.3 million. Most of the economic, political and social problems that Greece faces is already priced in and any favorable development can result in a large upside for investors. The top two holdings of this fund, Alpha Bank and Hellenic Telecommun Organ, account for 12.8% and 11% of the total fund holdings, respectively. This ETF is quite volatile with a beta in excess of 2.0, but the valuation is extremely cheap with a P/B of just 0.3. The financial sector is the largest component of this ETF with a 35% weightage followed by the industrial and the energy sectors. The total assets under management is around $250 million with an expense ratio of 0.63%.