Are these the most underrated ETFs of all time?

Are these the most underrated ETFs of all time?

More than 3,000 ETFs trade on U.S. exchanges, and nearly 1,600 of them have been around for at least five years. Advisors and investors know that this is an industry characterized by innovation in the structure of the ETF vehicle and the range of market segments accessible through these vehicles.

It’s also top-heavy, in a way that rivals global stock markets – just as a small number of giant stocks absorb a large portion of investors’ assets, a relatively small group of ETFs also owns the majority of all US ETF assets.

This begs the question: “What does an ETF need to do to attract the attention of a large number of investors?” If it was all about branding, why are there many ETFs from a handful of dominant providers that don’t amass huge amounts of assets and lead their peer groups ?

Hidden gems of ETFs

And if it were just past performance, the stature of the ETFs shown below might not be so underappreciated within the ETF industry. More specifically, I went looking for ETFs with the following characteristics:

• At least 5 years since creation (so there has been enough time for them to be noticed)

• Annualized performance since inception of at least 12%

• Assets under management of less than $300 million

• Three high-yielding ETFs that investors and advisors may have missed

The largest of the trio presented in this article is that of 250 million dollars. Defiance Quantum ETF (QTUM), which has certainly been in a good place since its inception in 2018. There have already been four calendar years in which it achieved a total return of at least 35%, and it’s already up 9% this year. It’s not a small fund, but with an annualized return of 17.5% since inception, it’s worth asking why QTUM isn’t a much larger ETF. I don’t have the answer, but I’m asking the question.

THE Convergence Long/Short Equity ETF (CLSE) could be the answer to the question: “If an ETF averages over 15% per year over 14 years and starts 2024 up 19% through early May, does that make noise?” In terms of assets, not so much. This $84 million ETF holds more than 300 stocks, but is actively managed, with a turnover rate of more than 250%.

This is not unusual for an ETF like this, which practices a long-short investment strategy. Specifically, its net long exposure (the market value of long positions minus the market value of short positions) is typically between 50% and 100%. But despite this strong track record, the ETF has gone relatively unnoticed.

This could be due to its active nature, its long-short strategy, or the fact that Convergence is not among the largest ETF issuers. But that doesn’t make past performances any less impressive.

The story continues

This ETF asks: “Do you really know what you own?”

The five year old child Syntax Large Cap Stratified ETF (SSPY) is a $90 million ETF, despite an annual average of 13.5%, which is rare for a value-oriented ETF over this period. SSPY takes the S&P 500 and reweights it based on its proprietary, patented method it calls “stratification” which Syntax defines as a way to determine common risks companies face, then also divides the stocks into segments of activity defined.

As impressive as the asset growth in the ETF industry is, perhaps the next step in this evolution is for investors and advisors to be able to more easily identify what they might consider hidden gems. These examples, chosen from many others with similar stories, highlight how there are many ways to “win” with ETF investing when investors venture outside of the “usual suspects” who have cornered the share of assets.

Permanent link | © Copyright 2024 etf.com. All rights reserved

Source