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The great thing about exchange-traded funds (ETFs) is that they can integrate an almost infinite variety of “themes” into an easy-to-buy mutual fund. While popular ETFs are based on specific sectors, geographies or high-profile indexes like the S&P 500, other funds are based on an odd or niche area of the market or a completely unusual investment theme.
Here are seven of the weirdest and wildest ETFs and why you may or may not want to invest in them.
7 of the Most Unusual ETFs to Buy
The performance and cost data below are valid as of April 8, 2024.
1. ProShares Pet Care ETF (PAWZ)
Pets are a business niche that always seems to be growing regardless of the economy, so a well-built fund focused on these furry friends could be quite interesting. This ETF has just a few dozen stocks, and includes companies focused on food (Freshpet), healthcare (IDEXX Laboratories), and retailers (Chewy). The five-year returns were fine at 4.4 percent, but it was a bumpy ride over that period.
- Assets under management: $69.5 million
- Cost ratio: 0.5 percent
2. ProShares UltraPro QQQ ETF (TQQQ)
This fund tracks the performance of the Nasdaq-100 index, which includes the world’s largest technology stocks, and then puts it on steroids, with the goal of delivering three times the daily return of that index. The results have been breathtaking over the past decade, with the fund rising an average of around 37 percent per year, although it was up more than 70 percent per year before the market collapse in 2023. Of course, the downside was just as serious. . However, keep in mind that this fund uses options to amplify its returns, which means it is subject to continued decline in its net asset value as it needs to continually roll over its investments. But if you like investing in the biggest tech companies, the UltraPro QQQ ETF might be for you.
- Assets under management: $21.3 billion
- Cost ratio: 0.88 percent
3. iPath Series B S&P 500 VIX Short-Term Futures (VXX)
Yes, you can actually bet on the volatility of the S&P 500 index, and this fund is one way to do that, even though it’s technically an exchange-traded note (ETN) rather than an ETF. This note provides exposure to futures on the CBOE Volatility Index, better known as the VIX, or the fear gauge. Due to its structure, its intrinsic value tends to decline over time, and is best suited for short-term exposure to volatility, such as when the market is plummeting.
- Assets under management: $332.1 million
- Cost ratio: 0.89 percent
4. Buy Space ETF (UFO)
Despite the UFO ticker symbol, this ETF is less about the search for extraterrestrial life than the commercialization of space, so the fund’s shares won’t be foreign to most investors. It includes major satellite communications companies (Iridium Communications, Garmin, Sirius XM) and some defense companies (Lockheed Martin, Boeing) involved in related areas.
- Assets under management: $33.4 million
- Cost ratio: 0.75 percent
5. VanEck CEF Municipal Income ETF (XMPT)
This ETF is actually a fund of funds that invests in tax-exempt municipal bonds, hence the appropriate ticker symbol. The underlying funds are known as closed-end funds and are a popular way to buy municipal bonds and capture their returns through leverage. This VanEck fund allows investors to gain exposure to an almost complete range of such funds and a tax-free return of 4.8 percent. It’s an interesting idea, if it amounts to 1.82 percent of assets annually, and that’s on top of the already high fees charged by closed-end funds. It would be just as easy to skip the middleman here and perhaps pick the top 10 funds and significantly reduce your final total returns.
- Assets under management: $231.3 million
- Cost ratio: 1.82 percent
6. VanEck Social Sentiment ETF (BUZZ)
This fund is one of them a handful of AI-powered ETFs that use machine learning to choose investments. In this case, the AI is tuned to pick up positive investor sentiment from what the fund’s prospectus calls “millions” of data points in the news, social media, blogs and the financial press. That’s all narrowed down to 75 large-cap stocks that have the most positive sentiment. The one-year returns were good – an increase of more than 41 percent – but the three-year returns were -4.7 percent.
- Assets under management: $64.4 million
- Cost ratio: 0.75 percent
7. AdvisorShares Vice ETF (VICE)
These products may be bad for you, but ultimately they can be good for your wallet. With an appropriate ticker symbol, this fund invests in bad habits – think of tobacco, alcohol, gambling but also milder things such as chocolate – so-called ‘sin stocks’. These companies are largely consumer businesses, classified as cyclical or defensive, meaning they will usually do well regardless of the economic climate, and they tend to be cash cows, especially in good times.
- Assets under management: $7.4 million
- Cost ratio: 0.99 percent
What to look for with thematic ETFs
While oddball ETFs may have some fun and funny ticker symbols, they can have some serious drawbacks that investors should be aware of:
- Small: Strange thematic ETFs like this tend to be small, and many of them were created relatively recently in the hopes of finding a niche that could pique investor interest and quickly grow into a money-generating product. If they do not perform well in a relatively short period of time or do not resonate with investors, they are closed.
- High expense ratios: A byproduct of their small size is that many of these ETFs have high expense ratios, where the cost of owning the fund is a percentage of your investment. Fund managers have to cover all kinds of fees, and smaller funds often have exorbitant fees, while some of the best ETFs have razor-thin expense ratios.
- Misleading naming: One problem that many ETFs suffer from is that the name of the fund claims to do one thing, but usually seems to achieve another. For example, a space ETF might consist primarily of satellite communications companies and not the space companies you might imagine. Or a country ETF (for example, a Spanish ETF) might own stocks that make most of their profits outside that country.
- Limited track record of performance: Many thematic ETFs haven’t been around long and try to capture the spirit of the times with an aptly named fund and strategy. A recently closed meme stock fund is a good example. These funds often have a short track record and it is important that investors check the historical performance of the fund to see what it could deliver in the future.
These are some of the most important things to look for in any ETF you might invest in.
In short
ETFs can have a wide range of flavors, but it’s important to understand what you’re actually buying and how the investment strategy has performed. While there is some fun in the novelty of a thematic ETF, what you really want is your hard-earned money generating returns for you.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making any investment decision. In addition, investors are advised that the past performance of investment products does not guarantee future price increases.
