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5 Unique ETFs To Diversify Your Portfolio

At the start of 2015, investors could choose from 1,411 exchange-traded funds. And that figure keeps on growing as fund sponsors open three or four funds for every one that they close. These firms are launching funds simply because the demand is there.

But how much is too much? After all, so many new ETFs these days seem to be quite similar to existing offerings. For example, there are now dozens of ETFs that track the S&P 500, or a basket of stocks that are substantively similar.

As far as I'm concerned, it's much more interesting to discover new ETFs that aren't simply the "same-old, same-old." Here's a look at five ETFs that have launched in 2015, and deserve clear consideration for your portfolio.

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Innovator IBD 50 ETF (NYSE: FFTY)
Here at StreetAuthority, we are big fans of companies that seek out -- and profit from -- innovation. In fact in our Top 10 Stocks newsletter, we have a portfolio of stocks that we call "American Innovators." This new ETF, launched in April, holds a basket of 50 innovative companies, many of which are launching products. Top holdings include chipmaker, Avago Technologies Ltd. (Nasdaq: AVGO), drug maker Cambrex Corp. (NYSE: CBM) and video and audio imaging firm Ambarella, Inc. (Nasdaq: AMBA). The fund's 0.8% expense ratio is a bit stiff compared to other ETFs, but quite reasonable in comparison to similar growth-oriented mutual funds.

IQ Hedge Event-Driven Tracker ETF (NYSE: QED) and IQ Hedge Long/Short Tracker ETF (NYSE: QLS)
I'm including these two together as they have similar appeal and similar drawbacks. Each of these funds aims to target a popular hedge fund strategy.

The first fund owns stocks that are currently in the midst of unlocking shareholder value. That can come in the form of pressure from an activist investor, an announced spin-off or any event known as a "special situation." The second fund replicates a popular hedge fund strategy in flatt-ish markets (like the one we're experiencing now). This fund is balanced between long and short positions and is presumably positioned to generate gains even if the broader market remains range bound.

The problem with these two funds is that they don't yet have a lot of assets under management, which leads to wide bid/ask spreads. These are the kinds of new ETFs that you want to monitor and eventually buy when assets managed start to grow and trading spreads narrow.

WisdomTree Europe Hedged Small-Cap Equity ETF (NYSE: EUSC)
The sharp drop in the euro against the dollar over the past year has been a real boost to Europe's small and mid-sized businesses, many of which have an export focus. Of course investors in the United States are a bit wary of currency moves these days, as the euro's drop has already blunted the gains that European stocks have made this year -- at least in dollar-denominated terms. This fund removes the currency variable from the equation, enabling investors to directly benefit from any gains that these smaller European firms may make. If some predictions that the euro will get weaker in coming quarters come true, then these companies will see an even better backdrop for their exports.

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Global X YieldCo ETF (Nasdaq: YLCO)
Companies (especially master limited partnerships) that repeatedly throw off large cash flows are starting to realize that creating a separate income-producing tracking stock, known as a "yieldco," is quite popular with investors. I discussed this development a little more than a year ago, and since then, new “yieldcos” are appearing every month.

This ETF enables investors to focus on the trend with one simple vehicle. The fund, which was launched in late May, is yet to issue its first quarterly dividend, but the fund's literature indicates a yield of about 3%.

iShares Exponential Technologies ETF (NYSE: XT)
This fund was launched in March 2015 and is already quite popular, as evidenced by nearly $662 million in assets under management. The fund was launched with the aid of Ric Edelman, an investment advisor that popularized the theory of "exponential technology," which focuses on emerging, potentially high-growth industries such as bioinformatics and nanotechnology, along with innovative companies in more staid industries such as finance.

Such an approach has obvious risks. Some hot new technologies fail to live up to the buzz that they initially garner. To mitigate that risk, this fund includes plenty of well-established innovators such as Netflix, Inc. (Nasdaq: NFLX) and Valeant Pharmaceuticals International, Inc. (NYSE: VRX).

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Didn't Make The Cut
The Factorshares Trust - PureFunds ISE Cyber Security ETF (NYSE: HACK) was launched in November 2014, too early for inclusion with the freshman class of 2015 ETFs. However, its focus on companies battling the rising threat of cyber-snooping, identity theft and network attacks makes it an especially timely investment offering.

The BioShares Biotechnology Products (Nasdaq: BBP) also launched near the end of 2014 and takes an unusual approach to a risky category. It only invests in companies with a drug or medical device that has recently garnered the Federal Drug Administration’s approval.

Both the HACK and the BBP fund are up 20%-to-30% since their respective launches, compared to flat returns for the S&P 500.

Risks To Consider: New ETFs often take time to gain traction, so it's best to invest in them only when they have enough assets under management ($100 million) and high enough daily trading volumes (50,000 shares).

Action To Take --> FFTY and YLCO are my two favorites of this group of ETFs and are worth further research. On the other end of the spectrum, QED and QLS need time to build assets under management, but I suggest keeping an eye on their progress as their holdings grow.

Like I mentioned above, American Innovators are one key aspect of StreetAuthority's Top 10 Stocks newsletter. Recently, Dave Forest, the strategist behind the newsletter, has been talking about one of the greatest innovations to come out of America in decades. It's been dubbed "Ski-fy," but others are calling it "Internet 3.0." Either way, this is a mega-trend that investors can play in the coming months. If you’d like to learn more about this innovation, click here to see our research on the topic.

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