It’s no secret that fees, particularly the low kind, are one of the primary sources of allure for investors considering exchange-traded funds. Compounding the low-fee benefits of ETFs is the willingness of many ETF issuer to continually pare fund fees as those products gain more assets.
Economies of scale work for exchange-traded funds, meaning it is not a coincidence that many of the top asset-gathering ETFs are the ones with some of the lowest fees. For several years now, various inflows data confirm that ETFs with annual fees of 0.20% or less are commanding the bulk of investors’ assets.
Still, investors should be careful to not conflate cheap ETFs with good ETFs to buy, meaning there are some low-fee ETFs that are duds. That also means there are plenty of ETFs with above-average that are worth considering. Compelling, but pricey ETFs to buy can be found across asset classes and themes, including bonds, international equities and thematic investing.
Here are a few pricey exchange-traded funds that are worth the cost of admission.
First Trust Health Care AlphaDEX ETF (FXH)
Expense ratio: 0.62% per year, or $62 on a $10,000 investment.
Traditional, cap-weighted healthcare exchange-traded funds are inexpensive. Most have annual fees below 0.15% and there is even one with a yearly expense ratio of just over 8 basis points. But there are instances where paying up for the sector’s best-performing ETFs is worth it and the First Trust Health Care AlphaDEX ETF (NYSEARCA:FXH) is one of those cases.
The $2.20 billion FXH tracks the StrataQuant Health Care Index. Over the past decade, that benchmark has easily topped the S&P 500 Health Care Index and the Russell 1000 Health Care Index. More recently, FXH’s benchmark is beating those health care indexes over the past year and year-to-date.
Standard healthcare exchange-traded funds are usually heavily allocated to pharmaceuticals and biotechnology stocks, but those industries combine for just 23.43% of FXH. This ETF allocates almost 60% of its weight to healthcare providers and manufacturers of healthcare equipment, two of this year’s best-performing industries within the broader healthcare universe.
Components in this ETF are selected based “on growth factors including three, six and 12-month price appreciation, sales to price and one year sales growth, and, separately, on value factors including book value to price, cash flow to price and return on assets,” according to First Trust.
KraneShares CSI China Internet ETF (KWEB)
Expense ratio: 0.70% per year, or $70 on a $10,000 investment.
When using international exchange-traded funds, it is reasonable to expect to pay up relative to domestic equivalents. That is true with sector and industry funds like the KraneShares CSI China Internet ETF (NYSEARCA:KWEB), but a higher fee does not diminish the opportunity set available with KWEB, particularly at a time when the ETF is struggling.
KWEB is down nearly 26% year-to-date, reflecting one of the widest gaps in years between Chinese and U.S. Internet stocks. However, KWEB is showing signs of life, gaining over 5% for the week ended Nov. 16th. With the Chinese economy continually shifting from an industrial-based economy to a services-powered economy, the long-term outlook for KWEB remains compelling.
“In 2013, China’s services sector surpassed its industrial sector as the largest contributor to GDP for the first time, and since then, it has continued to steadily outgrow the industrial sector,” according to KraneShares research. “The strong performance of China’s new economy shows us that while overall GDP growth numbers might have slowed in Q3, the fastest-growing areas of China’s economy still thrived.”
ALPS Disruptive Technologies ETF (DTEC)
Expense ratio: 0.50% per year, or $50 on a $10,000 investment.
There are plenty of technology ETFs that qualify as “cheap,” but those products are heavily allocated to the largest tech stocks, risking vulnerability in declining markets as was seen in October. While technology is always evolving, many of the most compelling, futuristic themes are not adequately reflected in traditional tech ETFs.
The ALPS Disruptive Technologies ETF (NYSEARCA:DTEC) does not just provide exposure to one high-flying technology theme; it features exposure to 10 such themes on equally-weighted basis. Disruptive themes featured in DTEC include big data, cloud computing, cybersecurity, healthcare innovation and Internet of Things (IOT).
“Thematic investing aims to capture exposure to secular trends taking shape within an economy, which can arise due to demographic shifts, changes in government policy, or more commonly, advances in technology,” according to ALPS.
SPDR DoubleLine Total Return Tactical ETF (TOTL)
Expense ratio: 0.55% per year, or $55 on a $10,000 investment.
Traditional passively managed aggregate bond exchange-traded funds are usually cheap. Several of the dominant names in this category have expense ratios of less than 0.10%, but the actively managed SPDR DoubleLine Total Return Tactical ETF (NYSEARCA:TOTL) is a credible alternative to passive products tracking the Bloomberg Barclays U.S. Aggregate Bond Index or an equivalent benchmark.
That index is heavily weighted to Treasuries and mortgage-backed securities (MBS). While that strategy mitigates credit risk, it does introduce interest rate risk into the equation. As an actively managed fund, TOTL can manage both credit and rate risk while including some potentially higher-yielding fixed income assets in its portfolio.
Currently, TOTL allocates over half its weight to MBS with emerging markets bonds and bank loans combining for 15.60% of the fund’s roster. TOTL has an option adjusted duration of 4.52 years and a 30-day SEC yield of 3.68%.
American Customer Satisfaction ETF (ACSI)
Expense ratio: 0.66% per year, or $66 on a $10,000 investment.
Happy customers make for a valid investment thesis. The American Customer Satisfaction ETF (CBOE:ACSI) proves as much. Over the past 12 months, ACISI is up nearly 9.30% compared to just 5.84% for the S&P 500.
ACSI’s underlying “index utilizes customer satisfaction metrics for over 350 brands, representing over 150 large capitalization securities for inclusion in the index,” according to the issuer.
Since no particular sector has a monopoly on good or bad customer service, ACSI applies sector constraints, but at the end of the third quarter, the ETF allocated about 39% of its weight to consumer discretionary and technology stocks, giving it a growth feel. On a related note, ACSI is topping the Russell 1000 Growth Index by about 130 basis points over the past year.
Todd Shriber does not own any of the aforementioned securities.
