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‘Deep Thoughts’ On New ETFs

Paul Baiocchi

After all, if a social media ETF can work, who’s to say ETFs focused on concrete or toll roads can’t?

Some of the themes that follow may prove to be impossible to execute from a registered investment company (RIC) compliance perspective, but that never stopped issuers before. After all, Netflix is to cloud computing what the neo-Keynesian economist and New York Times columnist Paul Krugman is to Ludwig Von Mises, the late laissez-faire economist for whom gold was the best store of value.

If anything, the rash of recent exotic ETF ideas proves that if the index provider is willing to get creative with the methodology, the investable universe can expand enough to include all the large-cap companies needed to make a portfolio investable. Just call it a supply chain play, or better yet, include “nonpure-play” companies.

Tablet ETF

Now that Samsung; Research In Motion; Motorola; the Taiwan-based computer maker ASUS; and Hewlett-Packard have all entered the tablet market with iPad killers, it only seems appropriate for a tablet index and subsequent ETF offering to be stuffed into someone’ s pipeline.

Tablet PC sales are forecasted to nearly triple in 2011 compared with 2010, according to IC Insights. What better idea than to build an ETF to take advantage of the American public’s latest gadget obsession? Not only could the portfolio own small component firms like STMicroelectronics (NYSE:STM - News) or LG Display (NYSE:LPL - News), it could also justify owning mega-cap tech companies like Google and Apple.

Never mind that the portfolio would end up looking and acting like existing large-cap technology ETFs—the iShares Dow Jones US Technology Fund (NYSEArca:IYW) comes to mind. Just imagine the marketing and stock photo opportunities! The ticker could be “GEAR.”

ETF Of ETF Issuers

As I’m sure you’re aware, there are plenty of financial ETFs and plenty of ETFs-of-ETFs.

There are not, however, ETFs that seek to capture the fantastic growth of the ETF industry. Now clearly this portfolio would not work as a pure play. WisdomTree, after all, is the only publicly traded ETF firm in existence whose business is solely focused on ETFs. The company, which has a few blockbuster ETFs attached to its name, just recently moved from the Pink Sheets to the Nasdaq and characterized the move as something of a move up in the world.

To make the portfolio investable, it would not only need to include diversified ETF issuers like BlackRock and Invesco PowerShares, it would have to expand its portfolio to own European and Asian ETF issuers like HSBC. Congratulations; your ETF-of-ETFs, made up of ETF companies, is essentially a watered-down version of the iShares S&P Global Financials Sector Index Fund (NYSEArca:IXG). The ticker could be “ETF.”

Healthy-Eating ETF

Michelle Obama’s healthy-eating initiative is the perfect type of dynamic around which to center a ridiculous ETF premise.

America’s well-publicized battle with obesity will funnel money into organic food companies like Whole Foods Market (NasdaqGS:WFM - News) or supplement firms like GNC Holdings (NYSE:GNC - News).

Obviously, grocers sell foods that will end up on the wrong side of the newfangled food pyramid, or rather ”My Plate,” as the U.S. government now calls it, so the portfolio will need to own the entire supply chain.

Companies like Monsanto—whose Roundup-infused seeds promote the use of dangerous agricultural chemicals—do allow for enhanced crop yields, which would be vital to satisfying the food and vegetables requirement in the government’s new nutritional rubric.

It doesn’t matter that you can get this exact exposure via the Market Vectors Agribusiness ETF (NYSEArca:MOO - News). At least you’d be doing your part to promote healthy living.

Reality-TV ETF

It seems that everywhere you turn, some corner of the world is being featured in a reality TV show. Housewives, rock stars, truck stops and pawn shops are just a few of the topics covered in the reality TV space.

This explosion is also big business. For ETF investors, it could mean opportunity. This hypothetical portfolio would own names like Comcast Corp (NYSE:CCS - News), whose purchase of NBCUniversal gives it ownership of BravoTV, the self-proclaimed epicenter of reality TV.

Of course, just as with all these themes, any iteration of a reality TV portfolio would end up being kissing cousins with an existing ETF, in this case the PowerShares Dynamic Media Portfolio (NYSEArca:PBS). The ticker could be “REAL.”

Listen, I’m not opposed to innovation or ETF creativity.

The problem is that many of the new ETF portfolios provide seem to claim new or better exposure to hot trends, when in fact many are simply retreads of existing portfolios that seem to be coming with inflated expense ratios.

In other words, we’re hearing a lot of noise without much melody.

For investors, this just means getting familiar with the underlying index methodology and becoming acquainted with the portfolio, because there’s no sense in paying a higher fee for what amounts to clever marketing.

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