3 Unusual ETFs That Beat the Market

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ETFs - 3 Unusual ETFs That Beat the Market

Source: Investment Zen via Flickr (Modified)

When it comes to exchange-traded funds, the market is extremely crowded. Even worse, many ETFs are virtually identical. Even worse than worse, most ETFs do not beat the market. Many are index-pegged, so they don’t even try. They just provide convenience.

3 Unusual ETFs That Beat the Market: DOD SPHB RYJ

Many actively managed ETFs, or quasi-actively managed ETFs, get criticized for taking high fees but not doing terribly well against benchmarks. However, a lot of digging can yield some places to start doing research on ETFs that do beat the market. They aren’t easy to find, and they may not beat the market over extended periods, but the right ETFs at the right time can work wonders in a long-term diversified portfolio.

Finding those ETFs is one of the strategies of my forthcoming stock advisory newsletter, The Liberty Portfolio.

Here are three ETFs with which you can begin doing some more research.

Unusual ETFs to Beat the Markets: Powershares S&P 500 High Beta Portfolio (SPHB)

Unusual ETFs to Beat the Markets: Powershares S&P 500 High Beta Portfolio (SPHB)Expenses: 0.25%, or $25 per $10,000 invested annually

PowerShares S&P 500 High Beta Portfolio (NYSEARCA:SPHB) is a much-higher-risk ETF than I personally like, but I know some investors like taking on more risk in exchange for a shot at higher returns.

The ETF invests in the 100 stocks of the S&P 500 that are the most volatile, as far as being the most sensitive with respect to the market’s movement. Not surprisingly, this means about a third of the ETF consists of financials and another 22% is in energy.

When the market does well, SPHB does extremely well. For example, the S&P 500 was up 16%, 32%, and 12% in 2012, 2013, and 2016, respectively. SPHB returned, in those years, 18%, 41% and 26%.

However, in flat-to-down years, it does much worse, so tread carefully with this one.

The total management fee is only 0.25%.

Unusual ETFs to Beat the Markets: Guggenheim Raymond James SB-1 Equity Fund (RYJ)

Unusual ETFs to Beat the Markets: Guggenheim Raymond James SB-1 Equity Fund (RYJ)Expenses: 0.75%

Claymore/Raymond James SB-1 Equity Fund (NYSEARCA:RYJ) is a smaller ETF that goes after stocks that are rated “strong buy” by the Raymond James investment bank. Specifically, Raymond James says these stocks are expected to bring a total return of 15% AND outperform the S&P 500 index in the next six to 12 months.

Moreover, this already-conservative approach takes a more conservative stab by going with equal-weight holdings. Obviously, the holdings in this ETF are going to vary based on many elements regarding the economy and certain sectors. At the moment, energy has a 20% weighting, with IT at 17%, healthcare at 15% and consumer discretionary at 14%.

With the S&P 500 up 16% in the past year, RYJ has actually killed it with returns of 24%. It’s a bit pricier to run, at 0.75% expense ratio, but that’s not unreasonable because it is specific to an investment bank that is using its own specialty index to make its choices.

Unusual ETFs to Beat the Markets: Elements Dogs of the Dow (DOD)

Unusual ETFs to Beat the Markets:Elements Dogs of the Dow (DOD)Expenses: 0.75%

Believe it or not, the Dogs of the Dow strategy still works. Say hello to Deutsche Bank AG Elements Dogs of the Dow Total Return Index Note (NYSEARCA:DOD). Some people have a misconception of this strategy, which they think is to buy the 10 worst-performing Dow stock from the previous year. That’s not correct.

The Dogs of the Dow strategy is actually to buy the ten stocks with the highest dividend yields, meaning that they are paying the highest dividend because of the dividend being relative to price.

What’s particularly interesting about this strategy, is that Morningstar shows that over the one-, three- and five-year periods, DOD captured 175%, 128%, and 109%, respectively, of the market’s upside. However, it only captured 113%, 76%, and 75% of the market’s downside during these same periods.

Compared to the S&P 500’s 16% one-year return, it has returned 18%.

Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance. He has 20 years’ experience in the stock market, and has written more than 1,200 articles on investing. He also is the Manager of the forthcoming Liberty Portfolio. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com. As of this writing, he did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/03/etfs-beat-the-market-ryj-dod-sphb/.

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