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The 3 Best Ideas From the Inside ETFs Conference

The Inside ETFs Conference is one of the most interesting investment meetings of the year.


Unlike other ETF industry gatherings, the Inside ETFs Conference, sponsored by website, is the largest meet-up in the business. With some 2,000 professional attendees all looking for the latest and greatest ways to use ETFs as part of their investment portfolios, this conference tends to generate buzz on the next wave of best ETF ideas.

This year, the conference had an impressive array of high-profile speakers, including money managers such as DoubleLine Capital CEO and CIO Jeffrey Gundlach, a.k.a. “The New Bond King,” and Kenbelle Capital CIO Meredith Whitney. There also were luminaries from other fields, including political strategists/rivals Karl Rove and James Carville.

And of course, what shindig would be complete without a sports star? This year’s event featured four-time Super Bowl champion quarterback Terry Bradshaw.

The real action at the Inside ETFs Conference came from the ETF issuers themselves, as big companies such as WisdomTree, PowerShares, iShares and Guggenheim all talked up their impressive line of best ETF ideas. Then there were the smaller ETF issuers such as AdvisorShares Gartman, PureFunds ISE and BioShares that also impressed.

After conversing with several money managers who attended the conference this year, and who use ETFs as their primary tool for gaining exposure to a variety of asset classes, I’ve come up with my own list of what I call the three best ETF ideas from the Inside ETFs Conference.

Best ETF Idea #1: Smart-Beta Funds

Smart-beta funds seem to be all the rage in ETF land these days, and that certainly was the case at the Inside ETFs Conference. Smart-beta funds provide a spin on traditional indexed ETFs, and they’re basically a hot-rod version of traditional market-cap weighted indexing. WisdomTree, PowerShares and iShares all have developed products with a smart-beta spin.

Smart-beta ETFs are engineered to deliver a variety of objectives to investors. Some smart-beta ETFs weight the stock allocations they hold by stocks paying the biggest dividends, or by volatility, or by revenue. The most basic smart-beta fund is one that equally weights each stock in an index, such as the Guggenheim S&P 500 Equal Weight ETF (NYSEARCA:RSP). This fund takes the constituents of the benchmark S&P 500 and equally divides them up to create the portfolio. The equal weighting here allows for smaller stocks to play a bigger role in overall performance of the index.

Another stalwart smart-beta fund is the PowerShares Low Volatility ETF (NYSEARCA:SPLV), which holds the least volatile stocks in the S&P 500. This fund outpaced the basic index ETF SPDR S&P 500 ETF Trust (NYSEARCA:SPY) over the past 52 weeks, with SPLV gaining 17% while SPY gained 13%. RSP also topped the more popular SPY, with a 52-week showing of 14%. And while this percentage difference may not seem like much, over time it can make a money manager (and individual investors) a big performance advantage.

Given the potential for higher returns over conventional market-cap weighted index funds, it should come as no surprise that smart-beta ETFs have captured approximately 60% of all money flowing into ETFs over the past two years, according to Morningstar.

Best ETF Idea #2: Hedged Currency Funds

Hedged currency ETFs made a big splash at the Inside ETFs Conference, and though many have been around for some time, there are a few new funds putting an interesting spin on currency hedging. Two of the most well-known hedged currency funds are the WisdomTree Europe Hedged Equity ETF (NYSEARCA:HEDJ) and the WisdomTree Europe Japan Hedged Equity ETF (NYSEARCA:DXJ).

These funds are designed to take advantage of the upside in their respective countries, while also hedging out the currency risk from declines in the euro and the yen. Given the U.S. dollar’s recent supremacy over the euro and the yen, the virtue of the currency hedged aspect of both HEDJ and DXJ now are well known to both professional and novice investors.

Another way to take advantage of currency divergence also is via two of the most-talked about ETFs from the conference, the AdvisorShares Gartman Gold/Euro ETF (NYSEARCA:GEUR) and the AdvisorShares Gartman Gold/Yen ETF (NYSEARCA:GYEN). Both of these funds invest in gold, but they do so in conjunction with specific currencies.

These funds get long gold while also shorting the either the euro or the yen. So, GEUR is long gold/short euro while GYEN is long gold/short yen. As their names suggest, these funds are the brainchild of famed investor Dennis Gartman. Long a critic of central bank policies used to debase a country’s currency, Gartman is taking advantage of this by investing in a hard asset such as gold while also shorting country currencies that are intentionally being sent lower by “money printing.” Japan has been doing that with the yen since “Abenomics” began in 2012, and now the European Central Bank is about to start its own QE money printing scheme.

Taking advantage of the combination of higher gold prices and a lower euro and yen is one that all investors now can take advantage of with these best ETF ideas.

Best ETF Idea #3: BioShares Biotech ETFs

While certainly not the largest or most well-known ETF issuers, one company making a splash at the Inside ETFs Conference is BioShares. The new biotech ETF offerings are the BioShares Biotechnology Clinical Trials Fund (NASDAQ:BBC) and the BioShares Biotechnology Products Fund (NASDAQ:BBP).

Both BBC and BBP are equal-weight funds, and both are pegged to specific segments of the biotech sector. BBC follows what’s called the LifeSci Biotechnology Clinical Trials Index. This is an index of biotechnology companies that currently have products in the Phase 1, Phase 2 or Phase 3 clinical trial stage. BBP tracks the LifeSci Biotechnology Products Index — an index of biotech firms that already have product offering that have received FDA approval.

These two funds represent some of the best ETF ideas for one money manager in attendance, Doug Fabian, President of Fabian Wealth Strategies, a Registered Investment Advisory firm with nearly $100 million in assets under management. Fabian told me, “I was really impressed with the leadership at BioShares. The founders of this company all have PhDs in the biotechnology and/or biological sciences, and they really know their subject.”

Fabian said he plans to use the BioShares funds for his clients as a way to get, “strategic exposure to one of America’s most innovative wealth creation sectors.” Given the sector specificity of these funds, as well as the potential upside for investors associated with new drug therapies, it was easy to put BioShares funds on my best ETF ideas list.

As of this writing, Jim Woods did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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