In the expanding universe of exchange-traded funds (ETFs), it’s sink or swim.
Yet for every ETF that disappears from the market, a new one is launched. Of course, some of these ETFs are simply “me too” products that merely replicate the composition and performance of the most popular funds. At this point, do investors really need yet another ETF that mimics the S&P 500 Index?
That’s why ETF sponsors are trying to come up with new angles, launching funds that capitalize on key investing themes that haven’t been covered by other ETFs. In the past few months, we’ve seen several solid new ETFs that you should know more about. They may take time to build up assets, but they hold a great deal of long-term promise.
1. ProShares S&P 500 Aristocrats ETF (NYSEARCA:NOBL)
We’re big fans of companies that have built a long-term track record of dividend payments. And that’s what you’ll get with this ETF, which owns stocks in companies that have boosted their dividends for at least 25 years in a row. The track record is undeniably impressive: An index developed by S&P that underpins this ETF has gained 14% a year, on average, over the past five years, handily beating the S&P 500’s 10% annualized gain.
I wrote about these “aristocrats” earlier this year, noting that these stocks also tend to deliver above-average dividend yields, not just solid dividend growth. That’s a great reason to own this ETF. But investors shouldn’t necessarily anticipate continued outperformance with this approach. As I wrote back in February, rising interest rates will eventually lead more investors to buy bonds and CDs, “which will draw some attention away from dividend-paying stocks.”
2. WisdomTree Trust (NASDAQ:EMCG)
This ETF resolves a long-standing conundrum. Many emerging-market stocks are actually much more closely tied to Europe and the U.S. than local economies. The iShares MSCI Emerging Markets Indx (ETF) (NYSEARCA:EEM), for example, counts companies such as Samsung, Taiwan Semiconductor and Hyundai Motors among its top 10 holdings. It’s a challenge I noted roughly a year ago:
“An investment in emerging markets is really an indirect proxy for developed markets. Even large emerging-market companies that have greater local exposure are often still tied to global pricing trends. I’m talking about the commodity producers, major banks and basic materials firms.”
That’s why this new ETF is so appealing. It focuses on companies selling into the fast-rising emerging-markets middle class. The fund’s assets have a 31% weighting in consumer discretionary stocks, 27% in consumer staple stocks, 18% in banks and insurers, and 10% in utilities. China, Brazil and South Africa account for roughly 40% of the portfolio, while Mexico, India, Indonesia and Turkey make up another 33%.