The other day I was thinking to myself, if I were an ETF provider what ideas for new ETFs could I come up with that are not currently in registration by any other ETF company. My goal is to try to find spots where there is an unmet market need. Yes, there are over 1400 ETF/ETNs but there are still some holes in the market. To make sure my ideas were not already used, I used the ETFs in Registration section from Index Universe, which lists all the ETFs with a prospectus filed at the SEC. Below are my ideas with a description of what the proposed ETF would look like.
Idea #1
Precious Metals Covered Call ETF
Proposed Symbol: PMCC
ETF Description: The ETF would own shares of SPDR Gold Trust ETF (GLD) and the iShares Silver Trust ETF (SLV) and then use covered calls on each to create an income for the fund.
Benefits: GLD and SLV pay no dividends, which is a turn off to income investors, so if there was an ETF that had exposure to the physical metals and had income it would be more desirable. Therefore, instead of appealing to just one group of investors wanting metals exposure, there would be the added group of income investors who would possibly like the product.
Current Index Available: NONE
Proposed Holdings:
- Shares of GLD
- Shares of SLV
- Covered Calls on GLD
- Covered Calls on SLV
Idea #2
Cyber Security ETF
Proposed Symbol: SAFE
ETF Description: The ETF would invest in companies that deal with online security.
Benefits: With more and more data being on networks, and cloud computing expansion, protecting the massive amount of data is extremely important.
Current Index Available: The Solactive Online Security Index.
Proposed Holdings: The table below shows the holdings for the online security index, and is from Structured Solutions Solactive Indices webpage.
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Idea #3
Internet Commerce ETF
Proposed Symbol: ECOM
ETF Description: Would own companies that are involved in commerce on the internet.
Benefits: E-commerce sales have been steadily growing, so companies that engage in e-commerce would be included in the ETF. The first chart below compares the Internet Commerce Index to XLK and shows a large outperformance. The second chart compares the Internet Commerce index to FDN which uses the Dow Jones Internet Index, as the chart shows the two are very close but the Internet Commerce index has outperformed FDN the last two years. The two charts below are from Bloomberg.com.
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Current Index Available: The Dow Jones Internet Commerce Index
Proposed Holdings: The following table shows the the only holdings I could find online, on Bloomberg.com quote page for the index.
Idea #4
Low Volatility Multi-Asset Income ETF
Proposed Symbol: LVI
ETF Description: The ETF would be a fund of funds ETF, with a goal of minimizing volatility while producing income as well.
Benefits: Low volatility stocks have performed very well in the recent past. So creating an ETF that has low volatility stocks as well as bond ETFs, and currency ETFs will provide a diverse portfolio that has some stable income.
Current Index Available: NONE
Proposed Holdings:
Weight | Volatility | Dividend Yield | Weight* Vol | Weight*Yield | |
PIMCO 1-5 Year U.S. TIPS Index ETF (STPZ) | 15.00% | 1.90% | 1.33% | 0.29% | 0.20% |
PowerShares S&P 500 Low Volatility (SPLV) | 15.00% | 8.20% | 3.05% | 1.23% | 0.46% |
Vanguard Short-Term Corp Bond Index ETF (VCSH) | 15.00% | 1.30% | 1.96% | 0.20% | 0.29% |
SPDR Nuveen Barclays Capital S/T Muni Bond (SHM) | 10.00% | 1.80% | 1.17% | 0.18% | 0.12% |
iShares JPMorgan USD Emerging Markets Bond (EMB) | 10.00% | 3.30% | 3.83% | 0.33% | 0.38% |
iShares MSCI Emerging Market Minimum Volatility Index (EEMV) | 10.00% | 11.00% | 2.05% | 1.10% | 0.21% |
JPMorgan Alerian MLP Index ETN (AMJ) | 10.00% | 13.60% | 5.40% | 1.36% | 0.54% |
iShares Barclays MBS Bond (MBB) | 5.00% | 1.60% | 1.12% | 0.08% | 0.06% |
CurrencyShares Australian Dollar Trust ETF (FXA) | 5.00% | 7.10% | 2.33% | 0.36% | 0.12% |
iShares S&P U.S. Preferred Stock Index ETF (PFF) | 5.00% | 4.10% | 5.86% | 0.21% | 0.29% |
100.00% | |||||
Stocks | 35.00% | Portfolio Composite Volatility | 5.32% | ||
Bonds | 55.00% | Portfolio Composite Yield | 2.66% | ||
Other [Currency,Preffered Stock] | 10.00% |
Idea #5
BRIC Dividend ETF
Proposed Symbol: BDIV
ETF Description: The ETF would track dividend-paying companies from the BRIC countries, and weights the holdings by dividend yield.
Benefits: The ETF would be desirable because it would have income from dividend paying companies, and growth to go along with the income.
Current Index Available: NONE
Proposed Holdings: The proposed ETF would screen stocks from the MSCI BRIC index and ONLY include those that pay a dividend. Because many of the stocks in the Index are listed overseas, it is almost impossible to search for the dividend of each of the companies of the MSCI BRIC Index.
Idea #6
Low Volatility Energy Dividend ETF
Proposed Symbol: LVED
ETF Description: The ETF would include Energy companies from the S&P 1500 Index that pay a dividend, and weights the index by volatility.
Benefits: The ETF would be desirable because it would take a high volatility sector like energy and weight it by the lowest volatility, so the fund should have less volatility than an ETF like XLE, and a slightly higher yield.
Current Index Available: NONE
Proposed Holdings: Data from the below table is from Finviz.com. As the last part of the table shows, the proposed ETF would have a higher yield than the XLE, but a slightly higher volatility using data from Finviz, because XLE mainly holds mega-cap and large cap energy stocks whereas my portfolio would also hold small and mid-cap energy companies as well. The goal, as the ETF description above states, is to get a broad selection of energy companies, which is why I chose to use energy companies from the S&P 1500, instead of just the S&P 500 (SPY).
Ticker | Company | Dividend Yield | Volatility (Month) | Weight | Weight* Yield | Weight* Vol |
XOM | Exxon Mobil Corporation | 2.55% | 1.25% | 4.92% | 0.13% | 0.06% |
COP | ConocoPhillips | 4.54% | 1.28% | 4.55% | 0.21% | 0.06% |
CVX | Chevron Corporation | 3.33% | 1.41% | 4.05% | 0.13% | 0.06% |
KMI | Kinder Morgan, Inc. | 4.27% | 1.44% | 3.32% | 0.14% | 0.05% |
SE | Spectra Energy Corp. | 4.51% | 1.46% | 3.14% | 0.14% | 0.05% |
DO | Diamond Offshore Drilling Inc. | 0.73% | 1.65% | 3.04% | 0.02% | 0.05% |
TDW | Tidewater Inc. | 2.23% | 1.70% | 2.69% | 0.06% | 0.05% |
OXY | Occidental Petroleum Corporation | 2.83% | 1.71% | 2.59% | 0.07% | 0.04% |
DVN | Devon Energy Corporation | 1.51% | 1.72% | 2.59% | 0.04% | 0.04% |
MUR | Murphy Oil Corporation | 2.13% | 1.77% | 2.48% | 0.05% | 0.04% |
APA | Apache Corp. | 0.87% | 1.83% | 2.39% | 0.02% | 0.04% |
OII | Oceaneering International, Inc. | 1.36% | 1.84% | 2.38% | 0.03% | 0.04% |
SLB | Schlumberger Limited | 1.51% | 1.85% | 2.33% | 0.04% | 0.04% |
EOG | EOG Resources, Inc. | 0.56% | 1.85% | 2.31% | 0.01% | 0.04% |
BHI | Baker Hughes Incorporated | 1.40% | 1.93% | 2.29% | 0.03% | 0.04% |
HAL | Halliburton Company | 1.06% | 1.95% | 2.23% | 0.02% | 0.04% |
MRO | Marathon Oil Corporation | 2.23% | 1.98% | 2.11% | 0.05% | 0.04% |
BRS | Bristow Group, Inc. | 1.51% | 1.99% | 2.11% | 0.03% | 0.04% |
NBL | Noble Energy, Inc. | 0.98% | 2.00% | 2.09% | 0.02% | 0.04% |
INT | World Fuel Services Corp. | 0.38% | 2.02% | 2.07% | 0.01% | 0.04% |
HFC | HollyFrontier Corporation | 1.76% | 2.05% | 2.00% | 0.04% | 0.04% |
NOV | National Oilwell Varco, Inc. | 0.78% | 2.05% | 1.98% | 0.02% | 0.04% |
WMB | Williams Companies, Inc. | 4.18% | 2.08% | 1.96% | 0.08% | 0.04% |
APC | Anadarko Petroleum Corporation | 0.48% | 2.08% | 1.96% | 0.01% | 0.04% |
QEP | QEP Resources, Inc. | 0.27% | 2.11% | 1.93% | 0.01% | 0.04% |
EGN | Energen Corp. | 1.24% | 2.13% | 1.93% | 0.02% | 0.04% |
COG | Cabot Oil & Gas Corporation | 0.16% | 2.20% | 1.90% | 0.00% | 0.04% |
HES | Hess Corporation | 0.77% | 2.22% | 1.88% | 0.01% | 0.04% |
MPC | Marathon Petroleum Corporation | 2.28% | 2.24% | 1.87% | 0.04% | 0.04% |
EQT | EQT Corporation | 1.51% | 2.24% | 1.86% | 0.03% | 0.04% |
NE | Noble Corp. | 1.50% | 2.37% | 1.83% | 0.03% | 0.04% |
RRC | Range Resources Corporation | 0.24% | 2.44% | 1.82% | 0.00% | 0.04% |
CRR | CARBO Ceramics Inc. | 1.35% | 2.46% | 1.74% | 0.02% | 0.04% |
XEC | Cimarex Energy Co. | 0.83% | 2.48% | 1.74% | 0.01% | 0.04% |
VLO | Valero Energy Corporation | 2.13% | 2.53% | 1.73% | 0.04% | 0.04% |
CHK | Chesapeake Energy Corporation | 2.06% | 2.54% | 1.72% | 0.04% | 0.04% |
PTEN | Patterson-UTI Energy Inc. | 1.12% | 2.64% | 1.66% | 0.02% | 0.04% |
LUFK | Lufkin Industries Inc. | 0.86% | 2.75% | 1.62% | 0.01% | 0.04% |
HP | Helmerich & Payne Inc. | 1.10% | 2.75% | 1.61% | 0.02% | 0.04% |
PXD | Pioneer Natural Resources Co. | 0.08% | 2.86% | 1.60% | 0.00% | 0.05% |
CNX | CONSOL Energy Inc. | 1.46% | 3.23% | 1.55% | 0.02% | 0.05% |
SM | SM Energy Company | 0.21% | 3.34% | 1.37% | 0.00% | 0.05% |
BTU | Peabody Energy Corp. | 1.23% | 3.53% | 1.35% | 0.02% | 0.05% |
PVA | Penn Virginia Corporation | 5.07% | 4.31% | 1.33% | 0.07% | 0.06% |
GIFI | Gulf Island Fabrication Inc. | 1.67% | 4.84% | 1.20% | 0.02% | 0.06% |
ACI | Arch Coal Inc. | 1.57% | 5.23% | 1.18% | 0.02% | 0.06% |
Portfolio Composite Yield | 1.86% | |||||
Portfolio Composite Volatility | 2.10% | |||||
XLE Yield | 1.67% | |||||
XLE Volatility | 1.21% |
Closing Thoughts
This year there have been a record number of ETF closures, so the ETF market is getting a little saturated I believe, but there are some themes that are extremely popular right now: Dividends, Low Volatility, and High-Growth Industries. I think the above ideas would fill a specific spot in the market by satisfying current unmet market segments, or providing new twists on current segments that are popular with investors. If anyone that works for an ETF provider reads this article, I would enjoy sharing my thoughts and further research I have done on the above ETF ideas.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
