5 ETF Underdogs Beating The Market

by on October 30, 2013 | ETFs Mentioned:

Though the ETF industry has certainly come a long way since SPY‘s debut in 1993, there is still only a small percentage of ETFs that account for the majority of the industry’s assets. For some perspective, SPY’s total assets under management account for over one-tenth of all equity-based funds’ assets combined. And though some of the most popular exchange traded funds have managed to deliver stellar returns over the last few years, there are a handful of lesser-known ETFs that have also logged in noteworthy gains [see 7 Emerging Market ETFs Crushing It In 2013].

Meet The ETF UnderdogsETF Underdogs

For many, the research process prior to buying involves looking at the top ETFs by asset or the most popular funds by volume. Although this approach may be appropriate in some scenarios, it’s prudent to take a good look under the hood of some lesser-known ETFs as they may offer attractive opportunities. As such, below we investigate five exchange-traded products flying under the radar for most investors; each of the instruments profiled has posted stellar five-year trailing returns, while at the same time boasting under $1 billion in total assets under management.

Please note that the chart below is based on monthly returns, using adjusted closing prices, starting from 10/01/2008 up until 10/01/13 [see ETFs That Lost 50% In a Single Year]:

Nasdaq Internet Portfolio (PNQI, B-): This fund is designed to track the performance of the largest and most liquid U.S.-listed companies engaged in internet-related businesses. With just under $200 million in AUM, this fund has managed to gain more than 370% over the trailing five-year period, easily beating the broad market (as represented by SPY). Currently, the fund’s top holdings include Amazon.com (AMZN), Priceline.com (PCLN), Facebook (FB), and Google (GOOG).

MSCI Thailand Capped ETF (THD, C+): This iShares fund offers investors exposure to the Thai equity market and is home to just over $700 million in assets under management. The fund allocated roughly 30% of its assets to financial services companies, though energy, communication services, and industrial stocks also receive meaningful allocations. Even after taking a slight dip in 2012, THD has still managed to deliver over 300% over the last five years [see 5 Big ETFs That Still Aren't Back To Pre-Crisis Levels].

Dynamic Media (PBS, B): This fund is designed to give investors exposure to U.S. media companies, which are selected based on a wide range of investment criteria as opposed to the traditional market-cap weighted methodology. PBS’s top holdings include cable companies DISH Network (DISH) and DirectTV (DTV), as well as LinkedIn (LNKD), and Google (GOOG). With under $270 million in AUM, PBS has delivered a five-year return of over 220%.

Dynamic Pharmaceuticals (PJP, B+): Another Powershares’ “dynamic offering,” this unique pharmaceutical ETF utilizes an alternative weighting methodology that selects companies based on a variety of investment merit criteria, including fundamental growth, stock valuation, investment timeliness and other risk factors. As a result of the methodology, no one security is given more than a 5.2% weighting and exposure is nicely spread out across pharma companies of varying market capitalization. Over the last five years, the fund has gained over 220%.

Market Vectors Gaming ETF (BJK, C): This Van Eck offering is designed to invest in publicly traded companies worldwide that derive more than half of revenues from the global gaming industry. BJK’s portfolio consists of roughly 48 individual holdings, featuring exposure to some of the top names in the industry, such as Las Vegas Sands Corp (LVS) and Wynn Resorts (WYNN). The fund also features a well balanced mix of giant-, large- and mid-cap stocks, as well as some exposure to smaller capitalization companies. BJK, whose total assets under management total just over $60 million, has gained over 210% over the trailing five-year period [see 7 Cyclical Industry ETFs You Need To Own In This Bull Market].

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Disclosure: No positions at time of writing.