There are a lot of ETFs (exchange-traded funds) out there. Some of the most popular ETFs offer one-stop, diversified exposure to specific industries or investment types: gold ETFs, silver ETFs, bond ETFs, oil ETFs and natural gas ETFs, Canadian ETFs, emerging market ETFs, commodity ETFs … the list goes on.
But there are some exchange-traded funds that select their holdings a bit more … creatively. Here are three funds with unique screening criteria that were recently recommended in the Dick Davis Digest.
This first fund was recommended by Stephen Leeb’s The Complete Investor, and it focuses on stocks of companies that have a history of buying back their shares. Here’s his idea, via the latest Investment Digest:
“The amount of money being committed to corporate share buybacks lately has been impressive. … More than 100 companies in the S&P have bought back more than 4% of their shares in the past year alone. The buying hasn’t been limited to just one or two industry groups either; it stretches across most sectors, with the highest concentrations having been in Technology, Telecom and Consumer Discretionary. …
“These buybacks have undoubtedly been an important driver for stocks in the last few years. And with nearly $260 billion in buybacks announced so far in 2013 and likely more to come, they should not only keep a floor under share prices going forward, but also contribute further to the market’s advance. …
“If you’re interested in capitalizing on stock buybacks, one way to do so is with the Powershares Buyback Achievers Fund (PKW). The ETF mimics the performance of the Mergent Buyback Achievers Index, which tracks U.S. companies that have repurchased 5% or more of their outstanding shares in the previous 12 months. The strategy has proven to be a worthwhile one: since its inception five years ago, the fund has essentially doubled the return of the S&P 500.”—Stephen Leeb, PhD., The Complete Investor, 6/10/13
My second idea comes from Cabot Benjamin Graham Value Investor analyst J. Royden Ward. He recently recommended a fund that invests in companies that raise their dividends consistently. Here’s part of his advice, from the latest Dividend Digest:
“SPDR S&P Dividend ETF (SDY) holds all the companies in the S&P 1500 Index that have raised dividends every year for the past 20 years. The objective of the ETF is to include companies that have increased their dividends consistently. Only 85 qualify out of 1,500 companies!
“Companies with pristine dividend records tend to produce solid earnings and sustainable business models. Also, management is less likely to engage in reckless capital spending if the goal of management is to protect and grow the company’s dividend. SDY is currently selling at a very small 0.09% discount to its net asset value.
“The P/E ratio of the stocks contained in the ETF is 16.5, and the P/BV ratio is 2.84. Both ratios are reasonable, and the beta is below average at 0.86. Management fees total 0.35%.
“SDY is quite well diversified with risk spread out over 85 holdings. The largest position consumes only 2.55% of the total portfolio. The 10 largest holdings in order of size are Pitney Bowes, AT&T, Abbvie, HCP, Consolidated Edison, Air Products, General Dynamics, Nucor, Kimberly Clark and Leggett & Platt. The five largest sectors are Consumer Staples, Industrials, Financials, Materials and Utilities.
“SDY is a great substitution for bonds because of its 2.8% yield and steady performance. I expect SDY shares to reach my Min Sell Price of 100.00 within one to two years. Max Buy Price 66.50.”—J. Royden Ward, Cabot Benjamin Graham Value Investor, June 2013
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Finally, from the June 5 Investment Digest, my last idea is a mutual fund that focuses on stocks of indebted—and hopefully undervalued—companies. Here’s the recommendation, from Fidelity Monitor & Insight:
“Fidelity Leveraged Company Stock Fund (FLVCX)—While benchmarked against the S&P 500, neither the fund’s investment strategy nor its composition bear any resemblance to it. Instead, long-time manager Tom Soviero seeks out highly indebted (leveraged) companies that seem poised for an eventual resurrection. This is a form of value investing whereby stocks are seen as inexpensive relative to their potential. (Though one can argue that this is the case for all styles of investing!)
“Since taking this fund over in 2003, Tom has produced superior results, and his three-year record is also solid. But here and there, the fund hiccups (2008 and 2011 are notable examples), and so patience is a prerequisite to owning its shares (as we do in our Growth Model). This year, for example, its double-weight (23%) in consumer discretionary stocks looks like a home run, while its near triple-weight in materials (12%) plus an under-weight in consumer staples (2% versus 11%) have been less brilliant.
“Finally, while Tom likes to keep money sidelined so that he can jump on an opportunity without selling less-liquid positions, his robust 14% stake in cash is somewhat elevated, especially as stocks have rebounded.”—John Bonnanzio, Fidelity Monitor & Insight, June 2013
Wishing you success in your investing and beyond,
Chloe Lutts Jensen
Editor of Investment of the Week
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