- The ETF market is massive and growing rapidly, now including more than 10,000 funds and $11.5 trillion in invested assets globally.
- Cheap and broad ETFs dominate, but the list of funds also includes many quirky-themed ETFs for investors with a specialized focus.
- Despite often having higher fees and lower trading volumes, themed ETFs may still be able to achieve outperformance.
Though perhaps not as trendy as they were years ago, exchange-traded funds (ETFs) are nonetheless a core investment vehicle—and still an exceedingly popular one, at that. As of 2023, there were more than 10,000 ETFs listed across the globe, up by nearly a quarter from just three years earlier. Together, these funds manage a gargantuan $11.5 trillion in assets.
Leaders in the ETF space include proxies for prominent indices like the S&P 500 or the NASDAQ, and even funds aiming to represent the complete global stock market. But ETFs like the SPDR S&P 500 ETF Trust (NYSE:SPY), the Invesco QQQ Trust (NASDAQ:QQQ), and the Vanguard Total World Stock Index Fund ETF Shares (NYSE:VT) tell only part of the picture of the ETF environment.
Besides these and other major players, themed ETFs abound, providing investors with a host of investment perspectives and niches. Some of these ETF themes seem to exist only to cater to ultra-specific investing strategies or even as a joke. Still, quirky ETFs may have the potential to provide solid returns for savvy investors.
1. ZIG: Potential Acquisition Targets
The Acquirers Fund ETF (NYSE:ZIG) is an actively-managed ETF that holds a portfolio of stocks that the fund managers believe to be good potential targets for acquisitions or other takeover efforts. Taking the top 25% of all stocks by market capitalization as a potential pool, the fund selects roughly 30 names based on a combination of value metrics.
Stocks in the ZIG portfolio are likely to be undervalued relative to a conservative valuation assessment, to be capable of generating free cash flows, and to possess a liquid balance sheet. A benefit of ZIG is that it holds companies across multiple industries and sectors, providing diversification while maintaining a focus on value. The fund has returned more than 27% in the last year.
2. BUZZ: Following the Latest Trends
There can be a benefit to following investing trends, although keeping up with the latest popular stocks is time-consuming and investors often worry that they will be too late to join in. The VanEck Social Sentiment ETF (NYSE:BUZZ) tracks 75 large-cap U.S. stocks identified as top picks based on investor opinion and bullish sentiment. To select targets, BUZZ uses AI to scan through social media posts, articles, blogs, and similar sets of data.
The stocks included in the BUZZ portfolio trend toward popular tech names, but the portfolio is weighted such that no single position represents more than a few percent of invested assets. The ETF has outpaced the S&P 500 in the last year, returning more than 39% during that time.
3. NANC and 4. KRUZ: Betting on Congress' Investments
The Unusual Whales Subversive Democratic Trading ETF (NYSE:NANC) and the Unusual Whales Subversive Republican Trading ETF (NYSE:KRUZ) by the same provider make use of information provided by the STOCK Act, which mandates that Congresspeople report most stock trades within 45 days.
Nonetheless, some believe that the information available to these elected officials still gives them an advantage over other investors.
NANC and KRUZ aim to replicate trades made by Congresspeople registered as Democrats and Republicans, respectively, as well as their spouses.
Though both funds hold a similar-sized portfolio, their composition and distribution can be quite different; KRUZ is currently more evenly weighted than NANC, which has about a quarter of its assets focused on just a few positions.
NANC has outperformed KRUZ in the last year, returning 37.7% compared to 27.2%.
Beware Fees, Liquidity Issues
Themed ETFs give investors a ready-made way to explore a particular investment strategy or gimmick. But investors often pay handsomely for this convenience, as themed ETF expense ratios tend to be much higher than more straightforward funds. When some of the most popular ETFs have seen fees driven consistently lower due to competition between different providers, a niche ETF—which may be more likely to be actively managed and thus more resource-intensive to run—usually doesn't face the same fee pricing pressure. Further, these funds often lack substantial asset bases and trading volumes, making liquidity a potential concern for investors as well. Still, for those willing to look beyond these concerns or those interested in buying and holding, quirky themed ETFs may be worth considering.