New ETFs to Look At
The major players in the ETF world have billions of dollars in assets, and chances are, that you know all about most of the latest fund offerings from these guys.
However, the other end of the market contains ETF opportunities that at this time are the sole offerings of their sponsors.
There’s extraordinary ETF opportunities in the stand-alone market for the right investor, but should you consider a stand-alone ETF for your clients?
Firmly on the plus side, in order to launch a stand-alone ETF, sponsors need ideas that aren’t clones of something that is already available in the market. This in no way is an indicator that it will be the best investment strategy ever created, but it may be an interesting diversification play.
Also, if you have questions or concerns about the ETF offering, there’s an improved chance that the sponsor will maintain communications rather quickly. Companies that just joined the ETF space need business and are willing to hustle a bit to get it.
There are some cons, however, associated with smaller ETF products. A new ETF will likely have limited assets and float in comparison to its bigger brethren. This means that the product trades with wider spreads—it may be wise to buy or sell with limit orders in this situation.
There aren’t any guarantees of success with ETF products. If there aren’t enough assets attracted, an ETF may shut its doors—even if it’s from a larger sponsor. After this happens, the underlying assets are then liquidated and the cash is distributed to all holders in the defunct ETF. This can mean either a gain or a loss—or as the IRS terms it, a ‘taxable event.’