As we’ve said, ETFs are perfect to build out your core portfolio with. After all, their index-hugging abilities and low costs make them a perfect foundation to build a portfolio on. There’s a reason why more than $155 billion sits in the iShares Core S&P 500 ETF (NYSEArca:IVV). But what about those investors looking to spice things up in the new year? Here again, there ETFs to buy that can help you build a better portfolio.
One of the best parts about ETFs is that aside from cheap building blocks, they’ve democratized asset classes. Bond types and strategies once reserved for high net worth individuals or institutional investors can now be had by all. More importantly, they can be had for low-cost and with single-ticker tradability. ETFs can truly provide the best of both worlds.
By adding some of the top performers in these exotic ETFs, investors can potentially do better than just average and boost their overall returns.
With that in mind, here are five exotic ETFs to buy for a little boost to your portfolio in 2019.
Exotic ETFs To Buy In 2019: Invesco S&P 500 Equal Weight ETF (RSP)
If you’re looking to beat the index and derive a little more return than average, then you can’t “look” like the index. And that’s just what the Invesco S&P 500 Equal Weight ETF (NYSEARCA:RSP) is designed to do. RSP takes the venerable S&P 500 and reconfigures it.
One of the problems with buying ETFs that track the S&P 500 and most indexes for that matter, is that are market-cap weighted. The biggest stocks dominate assets. As a result, they have more pull on the indexes overall return. Smaller stocks (read: faster growing) can’t shine in the big benchmarks. RSP eliminates that problem by equal weighting all the S&P 500’s constituents. Everyone — from Exxon (NYSE:XOM) to Cintas (NASDAQ:CTAS) — are capped at roughly 0.20% of assets. This allows the smaller stocks to pull and push the index.
What it really does is boost returns.
RSP has managed to produce a 16+% average annual return over the last decade. That’s two full percentage points better than the bread and butter S&P 500. The drawback is that RSP has been a bit more volatile. But when combined in a portfolio, RSP’s bumps can be smoothed out. And that makes it a great addition for 2019.
Exotic ETFs To Buy In 2019: iShares Interest Rate Hedged High Yield Bond ETF (HYGH)
It’s no secret that the Federal Reserve has started to raise rates. For investors leaning on bond ETFs for income that can be a huge problem. After all, bonds fall when rates rise. Getting a good yield today, while not losing money as the Fed increases is a huge concern. But there are some ETFs to buy that can help on this front.
The iShares Interest Rate Hedged High Yield Bond ETF (NYSEARCA:HYGH) is a great example.
HYGH is what’s called a long/short ETF. The fund will sell or short a position in various interest rate swaps. That short position provides some cushion as bond prices fall in the wake of rising interest rates. At the same time, HYGH will go long a position of high-yield bonds — through a position in the uber-popular iShares iBoxx High Yield Corporate Bond ETF (NYSEARCA:HYG) — to pick up some current big income. Essentially, the long/short format allows investors to eliminate much of the duration risk, while still getting a pretty high dividend yield. And since the ETF is actively managed, the duration/swap portion of the portfolio is tailored to the current rate environment. All in all, HYGH provides a great exotic ETF to help spice up your core portfolio.
Expenses for HYGH run at just 0.54% — or $54 per $10,000 invested — and yields a healthy 5.56%.
Exotic ETFs To Buy In 2019: First Trust Health Care AlphaDEX Fund (FXH)
Overweighting certain sectors through ETFs can be a great way to spice up a boring core portfolio and one of the best sectors around could be the healthcare sector. While a lot has been said about drug pricing and the overall cost, the reality is the split congress isn’t going to change too much next year and demand continues to rise for a variety of healthcare needs. That makes healthcare sector stocks and ETFs big buys.
Those investors looking to score more from their healthcare ETFs should turn to the exotic First Trust Health Care AlphaDEX Fund (NYSEARCA:FXH).
FXH tracks a propriety index that focuses on growth elements. This includes “three, six and 12-month price appreciation, sales to price and one-year sales growth.” It then adds a few value screens to tilt the portfolio towards GARP-style investing. What it does is create a portfolio, unlike traditional healthcare ETFs. Top holdings currently include Centene Corporation (NYSE:CNC) and Dexcom (NASDAQ:DXCM). There are no big plodded pharma companies to be found. FXH updates its portfolio quarterly to keep the growth going.
As a result, the ETF has been a great addition of those investors seeking more “oomph” from their portfolios. Over the last decade, FXH has been able to return nearly 20% per year. Expenses for the exotic ETF run at just 0.63%.
Exotic ETFs To Buy In 2019: Pacer Trendpilot US Large Cap ETF (PTLC)
Your core portfolio is designed to be invested in for a long term and slowly grow. But for some investors, the daily gyrations of the market and continued increased volatility is getting to be a bit much. That’s why the Pacer Trendpilot US Large Cap ETF (NYSEArca:PTLC) might be a great addition for the new year.
PLTC has an interesting strategy that shifts its portfolio based on market conditions. Looking at the market’s 200-day moving average, Pacer will make decisions on what the ETF should hold. As long as the market closes above this technical indicator, PLTC will own 100% stocks. If it falls below this for five straight days, it’ll move half of its assets to cash/T-bills. And if stocks stay below this number for five more cash, the rest of the portfolio is converted to cash. The idea is that by shifting the portfolio, investors can miss some of the market’s losses and gain some protection.
With the markets current wonkiness, this strategy has paid off — with PTLC’s index slightly outperforming the S&P 500 year-to-date. Longer term, PTLC’s returns have been a mixed bag. However, the real benefit of the fund’s strategy has yet to be really tested in a down and crashing market. That could happen given the continued bearish outlook for equities.
Exotic ETFs To Buy In 2019: WisdomTree Managed Futures Strategy Fund (WTMF)
Choosing the right ETFs to buy can add a dash of alternatives to a portfolio with ease and one strategy that has a long history of providing uncorrelated returns is managed futures. Essentially, managed futures look to take advantage of price trends across a variety of different asset classes. This includes going long or short everything from commodities, equity indexes, foreign currency or even U.S. government bond futures. Historically, managed futures have largely been inversely correlated with stocks/bonds and has provided a great diversifier for portfolios.
The WisdomTree Managed Futures Strategy Fund (NYSEARCA: WTMF) has been one of the more successful ETFs in the sector and has garnered about $245 million in assets.
WTMG focuses its attention on just commodities, interest rates, and currencies. That makes it a real great diversifier for a core portfolio. Odds are, most investors have zero exposure to these areas. And by using an ETF, investors can have with single ticker ease.
Returns for the ETF have been mixed — with it gaining just 0.30% year-to-date. But that’s actually the idea. WTMF isn’t designed to look or act like anything in your core portfolio and with stocks falling this year, this flat return highlights its diversification benefit. All in all, WTMF isn’t going to knock it out of the park, but it will give you a smoother ride for your core. All for just 0.65% in expenses.
Disclosure: At the time of writing, Aaron Levitt did not hold a position in any securities mentioned.