2 Low Volume ETFs That Fly Under the Radar

ETFs offer transparency, tax-efficiency, low-cost diversification and "trade-ability." These factors give investors an incredible edge on controlling costs and risks.

Yet not all ETFs are equally tradeable; that is, while they may indeed trade throughout the day like individual stocks, limited investor interest may lead to an undesirable bid-ask spread.

It follows that investors may find themselves buying at an intra-day price that may be anywhere from .5% to 1% more as well as selling at an intra-day price that could be .5% or 1% less than hoped for. And this is most common in low volume ETFs that trade few shares throughout the day.

In my own endeavors, I typically steer far away from the low volume ETFs out there. Not only does there tend to be a greater risk of the fund being folded by the provider, but for those of us who use stop-loss protection, low-volume ETFs can execute at really poor prices.

So I have put forth my disclaimers. Now, here are a few potential exceptions:

1. PowerShares NASDAQ Internet (PNQI). This little engine that could has jumped more than 65% off its 52-week low set last November. It is up more than 23% YTD. And, it is one of the precious few stock-based investments that has managed to break solidly above a long-term, 200-day trendline.

The PowerShares NASDAQ Internet (PNQI) isn't cheap with an expense ratio of .6% and a bid/ask spread premium near 1%. That could be a 2% round-trip! Nor is it necessarily undervalued with a current P/E close to 20. (Then again, many Internet companies typically trade closer to 30, historically.)

Nevertheless, PNQI has managed to garner up to 10% more in capital appreciation over the First Trust Internet Fund (FDN) over the last 12 weeks. That's not chopped liver.

Personally, I'd still favor the First Trust Internet Fund (FDN). They traveled nearly identical paths across a 1-year time frame. But if you see a momentum market developing... like the one that began 6 weeks ago... you can sometimes get more "pop" from low-volume ETFs that fly under the radar.

2. SPDR S&P Emerging Markets Small Cap (EWX). In my recent feature on international small cap funds, I gave my impressions of the new Vanguard FTSE All-World ex-US Small-Cap ETF (VSS). One of its strengths is/was a 12%-16% exposure to emerging markets, not merely the developed world.

After nearly a year in existence, there's been negligible interest in EWX. It's only managed to accumulate a paltry $7 million in assets. Worse yet, the bid/ask spread premium regularly exceeds 1%. In an unbelievably volatile environment, particularly for small companies, particularly for emerging markets, getting out of this one at a desirable execution price point could be nightmarish.

That said, if you are a buyer when everyone is fearful, and selling when everyone is greedy (a.k.a. after 6 consecutive weeks of gains), the SPDR S&P Emerging Markets Small Cap (EWX) fund could be a profitable venture. EWX is up 48% since its lows last November.

Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.

Comments

[pdwst33:]

Shouldn't RWK (RevenueShares Mid Cap) +6.5% YTD vs MDY (Mid Cap Spyder) +1.6% be on this list as well as RWJ (RevenueShares Small Cap) -1.1% YTD vs. IJR (Small Cap IShares) -5.9%?

Apr 19 09:57 AM

[scousi:]

Be carefull shorting here.

The TALF may be extended to CRE. I know it`s unfair but don`t fight the FED.

Apr 19 11:01 AM