The Full List
- Asset class rotation ETFs cover countries (CRO) and sectors (PYH).
- Alternative asset class ETFs cover multiple asset classes (ALT), or individual asset classes such as patents (OTP, OTR).
- Hedge fund strategy ETFs are available for merger arbitrage (NYSEARCA:MNA), closed-end funds (NYSEARCA:GCE), and index inclusion (PNXQ).
- Other quantitative strategy ETFs cover the broad market (PWC, PWO, PIQ, PDP, PIV), or segment the market by market cap (PJF, PJG, PJM, PZI, PZJ), by growth and value (PGZ, PWB, PWV, PWJ, PWP, PWT, PWY), or by sector (FXD, FXG, FXN, FXO, FXH, FXR, FXZ, FXL, FXU, PYZ, PEZ, PSL, PXI, PFI, PTH, PTJ, PRN, PXJ, PTF).
What Are They?
- Quant Strategy ETFs provide exposure to stocks via a basket determined by rules-based quantitative analysis, such as "overweight stock markets with low P/E ratios" or "overweight stocks that have beaten earnings estimates for three quarters running".
- When applied to foreign stock markets, quantitative rules-based investing allows an ETF to focus on certain foreign markets and avoid others.
Why & How To Use Them
- Use these ETFs instead of regular index sector ETFs if you believe that quantitative, rules-based stock selection will outperform a market cap weighted or equal cap weighted index.
What to Look Out For
- Compared to passive index ETFs, specialty ETFs such as quant strategy ETFs tend to have higher expense ratios and wider buy-sell spreads (which makes them more costly to purchase and sell).
- The recalibration of the stock baskets underlying these ETFs leads to higher stock turnover and therefore potentially higher trading costs and lower tax efficiency.
- ETFs that adjust weightings between different countries are hard to include in a broadly diversified portfolio, unless used in addition to international index ETFs as a way to overweight certain countries.
- Articles on these ETFs: Why I'm Skeptical About Claymore's New Country Rotation Fund (Gary Gordon), Claymore's New Country Rotation and International Yield Hog ETFs (Roger Nusbaum), Claymore's New Rotation ETFs: A One-Stop Approach To Country Investing and Income Growth (Matt Hougan), Claymore's International Rotation ETF Challenges iShares MSCI (Carl T. Delfeld), First Trust, JPMorgan Team Up to Launch First 130/30 ETN (Murray Coleman), Did Specialty ETFs Provide a Cushion From the Fall? (Matt Hougan), Timing is Everything: PowerShares Launches 'Relative Strength' ETF (Matt Hougan).
- Articles on the quant strategy sector ETFs: Claymore's New Rotation ETFs: A One-Stop Approach To Country Investing and Income Growth (Matt Hougan), First Trust Launches AlphaDEX Family of Quant ETFs (Matt Hougan).
- More on PowerShares: Active Indexes Drive PowerShares' ETFs (Sam Subramanian), PowerShares: Growing Assets But With High Expense Ratios (Mick Weinstein).
- As an alternative to these ETFs, consider US Total Market and Broad ETFs.
This page is part of The Seeking Alpha ETF Selector which sorts ETFs by type, highlights how to use them and what to look out for, and provides links to articles that discuss key issues for investors.
Source: A Guide to Strategy ETFs