Specialized, Alternative ETFs

The U.S. exchange traded fund universe has more than 1,400 products available and the number is still growing, with proposed SEC filings ranging from run-of-the-mill beta indexing funds to specialized, niche offerings.

Eric Balchunas for Bloomberg points out that there are 982 ETFs waiting for the Securities and Exchange Commission to approve. While the majority of these proposed strategies are plain-vanilla, “me-to” products that try to mimic a large benchmark index, a number of ETF filings offer interesting market exposure.

For instance, the recent Winklevoss Bitcoin ETF filing has already stirred the markets, inciting some over-the-top negative reactions from many financial observers. The ETF would provide an easier venue for investors to gain exposure to the Bitcoin alternative asset. [Winklevoss Bitcoin ETF: Crazy, or Crazy Like a Fox?]

The IndexIQ Physical Diamond Trust would be the first physically backed diamond ETF. The fund would act like precious metal ETFs where shares are backed by physical assets stored in a vault. However, market observers argue that someone will have to find a viable way to sort and value diamonds in a uniform way so that investors would be able to effectively price the holdings. [GemShares Files for Physically Backed Diamond ETF]

A city-specific LocalShares Nashville ETF is in the works. The fund will track publicly traded companies that have corporate headquarters in Nashville, including Dollar General and Cracker Barrel. In 2009, two city-specific funds, Texas Large Companies ETF (TXF) and Oklahoma ETF (OOK), both closed due to poor investment demand.

In March, iShares filed for the socially responsible Human Rights Index Fund that excludes companies associated with countries that are known human rights violators, including those with “widespread death, torture, rape, forced labor and forced displacement from communities.” [iShares Files ‘Human Rights’ ETF]

ProShares also filed for eight Credit-Default-Swap ETFs. Credit-default swaps are used to hedge against losses on corporate debt or speculate on creditworthiness – the contract generates a profit if the bond issuer fails to meet its obligations, minus what the default debt is worth. [Because You Need a CDS ETF]