Fixed Income Hong Kong 2019

28 - 29 May, 2019

Hong Kong

+65 6722-9455

Staying Ahead of the Game with Hidden Gem ETFs


The ETF industry thrives on innovation, and is constantly looking to leverage the most disruptive influences around the world to help push boundaries and drive improved outcomes for investors. However, with the sector being understandably risk-adverse, smaller funds can find it hard to compete with larger ETFs, which are privy to the majority of investment flows. Compounding this issue are platforms and wire houses which makes it even harder for smaller funds to compete.

The knock-on effect of this bias towards larger and “safer” ETFs is that some incredibly promising funds slip by unnoticed.

Here are three hidden gem ETFs that are worthy of your attention.

Biotech

While biotech is certainly not a new face on the investment scene – it represents one of the hottest markets around right now – there are some elements of the industry which are worthy of closer inspection.

It is with this in mind that ALPS Medical Breakthroughs has developed SBIO to invest in the stocks of mid- and small-cap companies with market caps between $200 million and $5 billion. This restriction places it at the heart of research and development featuring biotech companies with at least one drug in phase two or three of their respective clinical trials.

“There is great opportunity in larger companies, but we wanted to capture the R&D side of the equation and create a product that can add value in the portfolio construction process,” said Mike Akins, Head of ETFs at ALPS. “We often work with RIAs who blend our product with something like the Nasdaq Biotech Index. While that index allocates 55% of its weight to names already held in XLV, the Health Care Select Sector SPDR Fund, SBIO currently has zero names in common.”

Ex-State-Owned Enterprises (XSOE)

Emerging markets have been an undeniable success over the last 12-18 months, but there is an argument that investors are directing their efforts into the wrong funds. This leads to many investors ending up in partly state-owned companies and boosting government coffers more than their own portfolio.

Image-1

XSOE by WisdomTree tackles this by intentionally excluding enterprises which are owned by the state. This allows these companies to gain exposure, instead of being lost in the maelstrom of unfiltered emerging markets, while neutralizing companies potentially influenced by government decisions.

“It’s hard for managers to serve two masters at once,” says Luciano Siracusano, Chief Investment Strategist at WisdomTree. “If you’re trying to maximize shareholder value and serve public interests at the same time, sometimes you can run into conflict. We like the idea of creating an index that is focused on the companies, sectors and countries that are most primed to compete globally. [When you do that] you get exposure to sectors and stocks that are globally competitive and, frankly, those that are more focused on the emerging markets consumer.”

Goldman Sachs Hedge Fund Industry VIP ETF

Image-1

Goldman Sachs has been a leader in hedge fund research for many years. But of course, when it comes to hedge funds, the problem is that they are generally only accessible to accredited to investors, and they’re staffed by some of the most experienced and qualified traders and analysts on Wall Street whose fees (naturally) are sky-high.

But Goldman Sachs Asset Management (GSAM) has launched an ETF – which pretty much anyone can access – that invests in hedge funds’ most popular stock picks. The Goldman Sachs Hedge Fund Industry VIP ETF tracks the GS Hedge Fund VIP Index, which includes the top ten long stock positions held by hedge funds.

The fund costs just 0.45% of assets managed – a far cry indeed from the traditional two-and-twenty fees, where fund managers charge investors 2% of assets plus 20% of performance gains.

“We developed GVIP to offer investors access to our firm’s analysis of hedge fund positioning,” said Eric Halper, Vice President and ETF Specialist at GSAM. “This is consistent with our strategy as an ETF issuer more broadly. We continue to deliver solutions in areas where we have unique capabilities that we believe will add value to client portfolios.”

Final Thoughts

The ETF industry is all about disruption, and it is ironic that these investment opportunities are themselves disrupting ETF funds. By unearthing hidden gems, investors can help minimize their own risk while also improving their chances of seeing significant returns.


Neil Dsouza

You can hear Jacky Tang, Goldman Sachs Private Wealth Management’s Head of Portfolio Management Group and Co-head of Investment Strategy Group Asia, speak about how can you leverage the latest developments in ETFs to better hedge risk and maximize returns at Fixed Income Leaders Summit 2018 this June at the Harbor Grand, Hong Kong.

Download the agenda today for more information and insights.