I recently noted a few niche Exchange Traded Funds that I have come across during my time researching the wide world of ETF's. In that piece I noted three niche ETF's that I could actually see myself buying. Today, I would like to shares a few more niche ETF's, some of which I would consider owning and others that I wouldn't touch.
The first two that I would like to point out are PureFunds ISE Cyber Security ETF (HACK) and the First Trust NASDAQ Cybersecurity ETF (CIBR). HACK was the first ETF that focused solely on cybersecurity, which is why I lean towards owning it instead of CIBR, which was started due to the interest and success of HACK. HACK goes after both the hardware and software side of cybersecurity and the service aspect. It splits the two segments of the business and weights them by market cap. HACK has an inception date of November 2014 and since then is up a little more than 10%.
While that is certainly not very impressive performance, it is hard to argue that we will see less of a need for cybersecurity in the future. With the ever increasing demand for more cybersecurity, investors who get in on this market today will likely see big upside in the future.
Or maybe long-term buy and hold isn't your thing! No problem because in the past each time another big data breach has been announced shares of HACK have popped. Having a strategy of buying shares now, holding them until a data breach is reported, selling once a move higher has occurred, and then repeating the process over and over again could produce big gains.
While I believe those in their 20's should be investing more than they are, I really wouldn’t want to see them plowing money into either of the next two ETF's on my list. Oddly enough both the Global X Millennials Thematic ETF (MILN) and the Principal Millennials Index ETF (GENY) were designed for investors in their 20's. Both ETF's are designed to provide exposure to companies who benefit from millennial spending habits.
So why don’t I like them, because they are focusing too much on one specific group of the population. Let's be honest, while Millennials are a large portion of the population, they certainly aren't the wealthiest portion. While some would argue that the little money they do have is quickly spent, their fashion tastes and likes and dislikes are constantly changing making it very difficult to keep ahead of the trend and figure out what company or industry will benefit from this age group.
Furthermore while they do offer exposure to a wide array of companies, if you're looking for a more diverse portfolio, just stick with the standard index fund. Other reason consist of high expense ratios of 0.68% for MILN and 0.45% of GENY, very short listings history with inception dates of May 2016 and August 2016, low assets of $4 million and $6 million, lower liquidity, and being heavily overweighed toward consumer cyclicals which represent more than 51% of each fund.
Another interesting ETF that is sort of age related is the Long-Term Care ETF (OLD). OLD focuses on senior living facilities, nursing services, hospitals for the elderly, and biotechnology and related products and services for age-related illnesses. The ETF is largely invested in REITs, but the ETF may hold investments that aren't real estate investment trusts.
Despite its name, OLD is not very old itself with an inception date of June 2016 and the fund has an expense ratio of 0.5%, two things I don’t really like about OLD. But, the focus on the older population through REITs and other healthcare companies could make OLD a winner in the future. The baby-boomers are retiring in mass and living longer than any other generation before. Furthermore while the Millennials can change spending habits, old age inevitability creeps up on us all. We all will eventually need assistance in some form or fashion meaning this industry will never be out of favor.
OLD is an ETF you can buy now and grow old owning.
One way many American's today are trying to fend off that old age is through more exercise and eating healthier, which brings us to our final niche ETF, The Organics ETF (ORG). ORG currently has 25 holdings which are companies from all over the world that cater to the demand for organic products. ORG focuses mainly on organic foods and its top two holdings consist of WhiteWave Foods at 20% and Whole Foods Market at 19%.
Organics is also a new ETF with an inception date of June 2016, has an expense ratio of 0.5% and currently only has net assets of $2.4 million. Combine these downfalls with the fact that WhiteWave and Whole Foods make up 40% of the fund, despite the potential organics has moved forward, investors should stay away. Furthermore, the big move towards organic food has slowed in recent quarters and while Whole Foods certainly spearheaded the movement, nearly all the big grocery chains now have some sort of organic food section. This again brings up the issue of buying an ETF that has more diverse exposure to grocery stores, as opposed to just Whole Foods, if this is a market trend and invest thesis you are attempting to target.
Remember finding a new niche trend and getting ahead of others is a great way to make some serious investment returns. But, if someone has already come out with an ETF that does just that, it's unlikely you are really ahead of anyone else. While some niche investments make sense, others are just another fad that will certainly fade with time. Figuring out which is which is the hard part, but that’s what we are here for.
Disclosure: Matt Thalman did not hold positions in any company or fund mentioned above. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.