CLS Investments is a top 10 holder in more than 50 different ETFs, many of which are new (and potentially small), but well vetted strategies with enormous potential. While the world of ETFs is still reasonably manageable, we believe investors should scour the available universe for undervalued asset classes. This can be uncomfortable, but highly rewarding. Let’s look at a few obscure examples that likely have flown under the radar of many ETF users.
First Trust Nasdaq Retail ETF (FTXD)
Some readers may just close their browser window right here. Retail? Retail?! This fund was launched about a year ago and, as many would expect with the Amazon onslaught, has not gained assets. However, the ETF tracks an interesting index. It weights securities in the retail industry by trailing 12-month volatility, valuations (cash flow to price) and several momentum measures. This helps to weed out some of the value traps in the space (there are many) and focus on the more attractive names, such as those that actually generate positive cash flow. From a valuation standpoint, although not explicitly screened that way, it looks attractive relative to the rest of the world on a price-to-earnings, price-to-sales, and price-to-cash flow basis. And for what it’s worth, it has a 4% weight in Amazon as of this writing.
VanEck Vectors Oil Refiners ETF (CRAK)
What if I told you there was an energy sector ETF up almost 25% this year? And, that it had less than $10 million in assets? Well, there is. The VanEck Vectors Oil Refiners ETF (CRAK) allocates to energy companies largely involved in crude oil refining. Most large conglomerates also have refining or downstream segments, but they are excluded from this ETF. Surging prices for distillates, such as gasoline, jet fuel, and heating oil (in large part due to hurricanes), have propelled this ETF to a terrific return in 2017. Despite the strong return, holdings are still remarkably cheap. Trading at substantial discounts in all four metrics we include here. Dare I say . . . buy some CRAK?
Global X MSCI Portugal ETF (PGAL)
An economic recovery is underway in Europe, particularly in some of the periphery countries that have been beaten down by multiple financial crises. The recoveries in Spain and Italy have been well documented, but another economy is growing at nearly a 3% annualized pace: Portugal! There is only one ETF with significant exposure to Portugal, the Global X MSCI Portugal ETF (a few others, GVAL and, ironically, CRAK, have less than 10% exposure to Portugal). This year, PGAL is one of the best performing European ETFs, up nearly 30% and besting the likes of Spain, Germany, France, and the always-wild Greece. Despite this run up, the ETF and underlying market is still remarkably cheap, as shown in the discounts below.
There are likely several other diamonds in the rough in the ETF world. It takes careful due diligence to find opportunities and allocate to them appropriately, but putting in the work can lead to outsized returns for investors. The aforementioned ETFs are all low in assets (currently) and likely not on the radar of many investors, but that doesn’t mean they aren’t worthwhile. As ETFs grow, so too do the opportunities for those paying attention!
Grant Engelbart is a Portfolio Manager at CLS Investments, a participant in the ETF Strategist Channel.
At the time of writing, CLS Investments, LLC did not own any of the aforementioned ETFs. 3006-CLS-9/27/2017