Claymore Specialty ETFs: Portfolio Builders or Punts?

 |  Includes: CVY, EEB, NFO, WMCR, XRO
by: Richard Kang

Claymore is a firm that actually started an ETF business in Canada near the beginning of this year. Their first offering was a Canadian fundamental index ETF launched in February of this year based on the FTSE-RAFI methodology first discussed here.

Currently, Claymore Investments (Canada) has five ETFs, with their US operations a bit behind in terms of fund launches but they now also have five ETFs available. Here is a thorough review of these funds.

  • (NYSEARCA:CVY): Claymore/Zacks Yield Hog ETF
  • (NYSEARCA:NFO): Claymore/Sabrient Insider ETF
  • (STH): Claymore/Sabrient Stealth ETF
  • (NYSE:XRO): Claymore/Zacks Sector Rotation ETF
  • (registration required) reports about the next set of ETFs from Claymore (NYSE:USA). The prospectus can be found here.

    The new offerings include the following:

  • Claymore/Clear Spin-Off ETF: This ETF “holds the stocks of companies that have been spun-off from larger corporations”.
  • Claymore LGA Green ETF: Tracks the “Light Green Eco Index” which is based on “data from public agencies that monitor environmental performance, and then selects stocks that rank in the top 50 percent for environmental performance in each industry.” Again, there’s an added quantitative screen overlaid on top.
  • Claymore/Ocean Tomo Patent ETF: Tracks an index that according to the site “includes 300 companies with the highest intellectual-property-to-book-value ratio on the market; in other words, companies that hold patents and not smokestacks.”
  • Claymore/Sabrient Defender ETF: Tracks an index whose constituents are biased based on having fundamentals that have “a history of out-performance during bearish market periods”.
  • Again, we have some ETF offerings showing the continued divergence away from the extreme low cost, broad asset class, market cap weighted index fund. They all sound interesting, however some (the green ETF and defender ETF) likely are covered by other existing ETFs, or at possibly overlap a significant amount. From a portfolio construction point-of-view, I’m not entirely sure how these would be fit. The spin-off and patent ETFs would not fit your traditional or even alternative asset classifications.

    In many cases, I wonder if investors would look at ETFs in these new “exotic” spaces as simply a punt. I’ve made arguments in the past for alternative energy (maybe this green ETF could apply) as a counterpart to energy sector positions, especially for investors like us Canadians with significant weights in this area.

    However, I think it’s becoming harder and harder to build arguments as to why I would need some of these new, highly focused ETFs. Portfolios differ just as much as investors. However, what would be your argument for holding, for example, a gastrointestinal/genitourinary/gender health index ETF, a private equity index ETF, a steel index ETF or a patent index ETF in your portfolio? I’m not saying you shouldn’t hold these. I only hope investors have a fundamental, portfolio based reason for adding such a holding within their mix.