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Proprietary Data Insights Top All Cap ETF Searches This Month
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Beware Of This Major Danger Facing ETF Investors |
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Today, we use Trackstar, our proprietary sentiment indicator, to have a little fun and make a point that amounts to a warning for ETF investors. While The Juice is all about the emergence of a wide variety of ETFs, particularly actively-managed and thematic ETFs, we also think investors should proceed with caution. Because… Just because a wide array of choices, options and alternatives exist doesn’t mean you should exercise them. All that glitters isn’t gold. And some of these ETFs, whether they rally around a theme (thematic), let a fund manager stock pick (active) or get fancy with a benchmark index (passive by definition, but we’ll call them pseudo-passive), make investing way more complicated than it needs to be. And, even worse, they often underperform more straightforward, set it and forget it, ETF products. For a thorough review of and differences between thematic, active and passive ETFs, see the following past installments of The Juice: Now onto Trackstar. It just so happens that the most-searched ETFs that own stocks of all market caps fit into one of the aforementioned categories: thematic, active or pseudo-passive. We’ll sample them against the two most popular broad market ETFs, the SPDR S&P 500 ETF (SPY) and the Invesco QQQ ETF (QQQ), as well as another comparable ETF. To start, here are the year-to-date and five-year returns of SPY and QQQ:
No surprise that the well-publicized ARK Innovation ETF (ARKK) sits atop today’s Trackstar ranking. You’ve probably heard of it. It’s run by Cathie Wood, a pioneer in the active ETF space. In ARKK, Wood picks stocks around the broad, if not ambiguous or open-to-interpretation theme of “disruptive innovation.”
You can attribute ARKK’s 2023 run to the Nvidia (NVDA) position it rode and recently sold, with Wood citing valuation as the main reason for the divestiture. You can attribute the weak five-year return to the fact that this ETF slingshot from the mid-$40s in 2018 to a high of around $157 in early 2021 to its current price of roughly $46. If you just kept your money in the Technology Select Sector SPDR Fund (XLK), which passively tracks the performance of the S&P 500’s Technology Select Sector Index, you’d be up 41% so far this year and, maybe more importantly, 140% over the last five. As long-term investors, we’d take the SPY/QQQ/XLK cocktail over ARKK every single day of the week. Mooooooving to number two on today’s Trackstar list, the Pacer US Cash Cows 100 ETF (COWZ). COWZ gets sorta fancy, trying to milk the Russell 1000 Index for all it’s worth by screening for the top 100 stocks in the benchmark with the best free cash flow yield. We’re not sure whether to call this active or pseudo-passive, but it’s certainly not completely passive.
Not bad, but not as good as SPY or QQQ on all timeframes but one (SPY’s five-year return lags COWZ). If you just went with the iShares Russell 1000 ETF (IWB), which passively tracks the index, you’d be up 18% in 2023 and 57% over the last five years. So, close. Next, another ETF from Wood, the Autonomous Tech. & Robotics ETF (ARKQ). It’s actively managed and, talk about ambiguous, all over the map on everything from AI to 3D printing to energy storage.
Definitely, not bad. But still neck and neck or not as good as SPY or QQQ long-term. And nowhere near the 54% YTD and 187% five-year returns of the ETF our sister newsletter, The Spill, suggests buying to invest in AI – the passively-managed VanEck Semiconductor ETF (SMH). Next, Innovator Funds decided to take an index created by Investors Business Daily and track it in an ETF. How innovative! So, we’re calling the Innovator IBD 50 Fund (FFTY) pseudo-passive.
Here again, stick with straightforward, tried and true, broad and strictly passive, major benchmark-tracking ETFs. Why mess around on the uncertain outskirts of town? Finally, number five on today’s Trackstar rundown – the SPDR S&P Dividend ETF (SDY). This ETF gets fancy with dividend aristocrats, tracking not the entire index, but only the S&P High Yield Dividend Aristocrats Index, which pulls the highest-yielding names from the broader benchmark. If you’re a sucker for dividend yield, you might find SDY attractive.
If you just bought the ETF that tracks the entire dividend aristocrats index – the ProShares S&P 500 Dividend Aristocrats ETF (NOBL), you’d be up 7% YTD and 47% over the last five years.
The Bottom Line: Sometimes more isn’t better; it’s just more. And, in investing, it can be extra stressful. Most of the fancy ETFs we featured in today’s Juice are more trouble than they’re worth. Because SPY, QQQ and other broad-based, straightforward ETFs tend to produce better returns. Sometimes way better returns. And, in the relatively small number of cases, where an active, thematic or pseudo-passive ETF does better, you have to ask yourself if the performance is sustainable and worth the uncertainty and trouble. In other words, do you take chances on ETFs with relatively unproven and short track records or go with the big boys? As long-term investors, in this case, The Juice tends to side with the big boys. |
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