Small Providers Offer Alternative Approaches

Small exchange-traded fund (ETF) providers can sometimes craft interesting alternative strategies for investors. ETFs typically are market-capitalization weighted proxies for a sector or a country, but small providers ArrowShares, ELEMENTS and RevenueShares offer innovative ways to invest.

ArrowShares has the Arrow Dow Jones Global Yield ETF (GYLD), which offers a composite index of five sector-specific indices of high-yield companies. So far this year, GYLD is up 4.67% and it currently enjoys a healthy 5.72% yield.

ELEMENTS does not actually offer ETFs. Instead, it distributes exchange-traded notes (ETNs). While ETFs represent ownership of the underlying basket of securities held by the fund, an ETN is an unsecured debt, where the issuer — in this case ELEMENTS — promises to pay an allocation corresponding to an index’s performance, less fees. Therefore, the investment is more like a promissory note than a stock. The benefits of ETNs are that they provide access to markets, industries, indexes and asset classes that are unavailable to the individual investor through mutual funds, ETFs or direct investment.

The ELEMENTS Morningstar Wide Moat Focus ETN (WMW) is one such ETN, tracking the Morningstar Wide Moat index. A wide-moat company is one that has a sustainable return on invested capital that exceeds the cost of capital and offers a sustainable competitive advantage. The Wide Moat Index is comprised of the common stocks of the 20 eligible companies within the Morningstar Wide Moat universe that have the highest ratio of fair value to stock price. WMW has gained 3.16% in value this year, after soaring 30.02% last year.

RevenueShares provides seven ETFs. Rather than weighting the holdings by market capitalization, RevenueShares weights by revenue, hence the name. One of the ETFs is the RevenueShares Ultra Dividend Fund ETF (RDIV). This fund holds the top 60 yielding stocks from the S&P 900. This ETF has gained 7.92% this year.

The offerings described above exemplify the merits of exchange-traded instruments by offering transparency, diversity and access to strategies and sectors previously only available to investors with large portfolios.

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