Plenty of Flavor in Tiny Batch of New ETFs

by Kyle Woodley | March 26, 2012 11:59 am

Only three new offerings entered the exchange-traded fund world last week, but as a group, they offer a wide variety of flavors.

The Direxion Nasdaq-100 Equal Weighted Index Shares (NASDAQ:QQQE[1]) offers a new twist on a familiar taste. Unlike the popular PowerShares QQQ (NASDAQ:QQQ[2]) and many other index ETFs that are weighted by market capitalization, the QQQE’s holdings are equally weighted, at 1% for each of the index’s 100 members. And the fund can be rebalanced should the index’s members change.

By equally weighting its holdings, the ETF won’t be as susceptible to large losses in any particular stock. This is more of a risk for funds like the QQQ, for instance, in which Apple (NASDAQ:AAPL[3]) makes up more than 18%[4] of the ETF’s holdings. Also, smaller-cap companies’ performance will provide more oomph than they would in a cap-weighted fund. The downside? You won’t see huge benefits from great single-stock performances, either.

Investors should view QQQE as a more diverse, stable play on the Nasdaq 100’s biggest sectors — information technology (49%), consumer discretionary (23%) and health care (16%) — at a reasonable 0.35% expense ratio.

UBS (NYSE:UBS[5]) launched the ETRACS Monthly Pay 2x Leveraged Dow Jones International Real Estate ETN (NYSE:RWXL[6]), a mouthful of a leveraged ETN that focuses on real estate investment trusts from across the world (minus the U.S.). The country allocations aren’t particularly lopsided, with Australia (17.9%), Japan (17.2%), the U.K. (11.5%), Hong Kong (10.4%) and Canada (10.2%) among the best-represented.

REITs are revered for the large amount of income they provide, and RWXL not only offers double the return of its underlying index, but double cash distributions of the note’s holdings. However, that same leveraging also adds an element of risk, as any losses will be magnified. RWXL charges 0.6% in expenses.

The Market Vectors Indonesia Small-Cap ETF (NYSE:IDXJ[7]) is a fairly niche play on small companies either located in the Oceania country or that get most of their revenues from it. More than 55% of the ETF’s weightings belong to the top 10 holdings — but the fund still is fairly balanced, considering the remaining 45% is spread among just 16 other stocks. Almost 40% of the fund is in financials, with industrials, energy and consumer staples making up significant portions, too. Fees come to 0.61%.

Including last week’s addition to the ETF investing world, 80 new funds have been brought to market in 2012, with nine launching in March. The previous week’s batch of ETFs included a number of income-focused funds[8].

Kyle Woodley[9] is the assistant editor of[10]. As of this writing, he did not hold a position in any of the aforementioned securities. Follow him on Twitter at @KyleWoodley[11].

  1. QQQE:
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  4. makes up more than 18%:
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  6. RWXL:
  7. IDXJ:
  8. number of income-focused funds:
  9. Kyle Woodley:
  11. @KyleWoodley:

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