Believe It Or Not: ETF Edition

by on September 2, 2013 | ETFs Mentioned:

Since the inception of the legendary S&P 500 ETF (SPY, A) over two decades ago, the ETF industry has certainly come a long way with issuers filling the product pipelines with some of the most unique products on the market. And though the industry continues to grow rapidly, investors still embrace these investment vehicles for three primary reasons: low expenses, liquidity, and transparency [see The Best (And Worst) Performing ETFs For Every Quarter].

For the most part, when an investor purchases an exchange-traded fund, they know exactly what kind of exposure they are getting, even if the investment objectives are a bit complex. A closer look under the hood of some of these products, however, reveals some peculiar holdings investors should certainly be aware of. In this piece, we highlight the most “bizarre” holdings we found in some of the most popular ETFs:

MSCI Belgium Capped ETF (EWK, B-) Driven By U.S. Beer ConsumptionUS Beer Consumption

This popular iShares fund dedicates more than 20% of its total assets to Anheuser-Busch, a brewing company responsible for producing some of the most popular beer brands in the U.S.: Budweiser, Bud Light, Michelob, Stella Artois, and Beck’s. Essentially, this means the performance of this fund is impacted by alcohol consumption habits in the U.S..

MSCI Switzerland Capped ETF (EWL, A) Hinges On Sweets And Hot Pockets

Another iShares offering, this ETF’s top holding is mega food giant Nestle, which, together with its subsidiaries, produces everyday items found in nearly every aisle of your local grocery store. Some of the company’s brands include sweet tooth favorites Butterfinger, Crunch and Kit Kats, as well as its Nescafe coffee line and the popular frozen food item Hot Pockets [see Single Country ETFs: Everything Investors Need To Know].

MSCI Spain Capped ETF  (EWP, B) Allocates More than 13% of Assets To Brazilian Telecom Company

While the majority of this fund’s assets are dedicated to companies domiciled in Spain, there is one holding, which happens to be the second largest component, that seems a bit out of place. Telefonica, which is given an allocation of more than 13%, is a Brazilian-based telecom company that only serves residential and commercial customers in Brazil. EWP’s top holding–Banco Santander–is also somewhat bizarre, as this bank derives a significant portion of its revenues from Brazil even though its headquarters are in Madrid, Spain.

SPDR Homebuilders ETF (XHB, A+) Invests In Mattresses, La-Z-Boys, And Robots

Though this popular SPDR fund invests in all of the usual “homebuilders” stocks, like Home Depot (HD), Lowe’s (LOW), and Lumber Liquidators, a significant portion of the portfolio is dedicated to home furnishing stocks. The ETF’s portfolio includes iRobot Corp (IRBT), which makes floor washing and sweeping robots as well as pool cleaning robots, La-Z-Boy furniture (LZB), and mattress giants Tempur Sealy (TPX) and Select Comfort Corporation (SCSS) [see Select Sector SPDR ETFs Head-To-Head].

ISE Global Copper Index Fund (CU, B-) Goes For Gold

This fund tracks an index that tracks public companies that are active in the copper mining industry based on analysis of revenue derived from the sale of copper. CU, however, has hefty allocations to Rio Tinto (RIO) and Freeport McMoran (FCX), both of which generate a substantial portion of their revenues from other metals, including aluminum and gold. FCX, for example, raked in gold sales of 1.0 million ounces at an average realized price of $1,665 in 2012.

MSCI Emerging Markets ETF (EEM, A-) Biased Toward “Quasi” Economies

As is the issue with many broad-based emerging market ETFs, EEM has significant allocations to Taiwan and South Korea, two economies that have long been debated over whether or not they should be considered “emerging.” Both countries meet the developed market standard of many index providers and organizations such as the IMF, and exhibit per capita GDPs, literacy rates, and life expectancy rates that make them more similar to the U.S. and Canada than Brazil and China [see Emerging & Frontier Markets ETFdb Portfolio].

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Disclosure: No positions at time of writing.