3 innovative new ETFs

These funds follow new strategies, at least in the exchange-traded fund world, and investors should take a look.

By MoneyShow.com Jun 17, 2013 3:31PM

Stock market report copyright CorbisExchange-traded funds expert Doug Fabian sits down with Ray Collins from the MoneyShow.com and discusses three of his favorite new and innovative plays in the ETF market.


ETFs made easy. We're here now with Doug Fabian. Doug, there are some innovations in the world of exchange-traded funds.


Well, Ray, I love this area of ETFs. And in some sense it's getting really complicated, because there are 1,300 products, but there's really good stuff that's coming from American companies; there's innovation that I want investors to know about.


The first innovation that I want them to know about is an ETF that is actually a fund of funds ... an ETF of ETFs. Now, you might initially think that maybe somebody's going to get double-charged or something like that. That's not the case. If you have mutual funds inside a mutual fund, there is a compounding of fees, but not so in the world of exchange-traded funds when it's done by a single company.


In this case, it's iShares. They came out with a product called iYield (IYLD). It has put together ten income ETFs. This exchange traded fund has got a current yield of 5.4%. You're receiving that income monthly, so it's a very nice tool for income investors.


It is a blend of dividend stocks, preferred stocks -- not just banking -- and real estate investment trusts, which make up about 50% equities of those three categories. Then on the fixed-income side, they've got some high-yield bonds, they've got some Treasury bonds to offset the risk of the high-yield bonds, and then they've got plain old corporate bonds.


This blended approach makes it very easy for an income investor to have a decent sized position in one security that doesn't have a lot of volatility and delivers income to them each and every month.


Talk some more about hedged equity.


Well, that sounds complicated, and I certainly am thankful that somebody knows how to do this, but there are now ETFs whereby the distributor, in this case Wisdom Tree, is taking out the currency risk out of an investment.


Let's talk Japanese stocks for a moment. I think most investors realize the Japanese stock market has been going up, but one of the reasons why it's going up is because its currency has gone down. The currency has fallen 30%...that's a huge, huge depreciation in the currency. You have currency risk when you own Japanese equities.


What Wisdom Tree has done is hedged (with DXJ), and they use futures and options to do this, so they're taking the currency risk out of the ownership of Japanese stocks, and it's resulted in a banner situation for investors.


This particular exchange traded fund is up 40% in five months versus a pure basket of Japanese equities that's up more like 25%. So you're getting a 15% increase over Japanese equities because they're taking away currency risk. That's innovation.


One of your buzz phrases these days is "industry-level ETFs." Talk about that.


Well, again, I'm loving what the industry is doing. Again, in some cases, people are overwhelmed just with the choices. But let's think about investment themes.


One of the themes I really like is in the world of energy services. Now, you can invest into the exchange traded fund that takes energy services, which encompasses everything from oil rigs to offshore drilling ... you can now just own those companies that are focused on the technology of fracking, of extracting oil and natural gas through that fracking technology process.


I don't know all the ins and outs of how it works, and the great thing about being an investor is you don't need to know, either. You just need to know that this is happening, this is a way to be able to increase production for these companies.


They're booming in their businesses, and now you can get exposure to fracking stocks in one ETF, Market Vectors Unconventional Oil & Gas ETF (FRAK) that has 40 individual equities in it, to give you some diversification, on a specific idea, technology, and trend.


More from The Money Show

  • Using a Better Momentum Strategy
  • This Tiger Is Roaring
  • The Right Stocks to Sell Now
0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

124
124 rated 1
279
279 rated 2
471
471 rated 3
714
714 rated 4
642
642 rated 5
604
604 rated 6
614
614 rated 7
450
450 rated 8
303
303 rated 9
115
115 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
ARCPAMERICAN REALTY CAPITAL PROPERTIES Inc10
BIDUBAIDU Inc10
CITCIT GROUP Inc NEW10
HPQHEWLETT PACKARD CO10
ITUBITAU UNIBANCO BANCO MULTIPLO S.A.10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.