New and Noteworthy ETFs

 | May 01, 2012 | 10:30 AM EDT  | Comments
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Stock quotes in this article:

MOAT

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CEMB

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QLTC

April is in the books, with most major indices ending just about flat after a month that saw big swings in both directions. Not surprisingly, the roster of exchange-traded funds continued to expand at an impressive pace last month; more than 20 new exchange-traded products came to market as product development remains strong.

Keeping with the industry's recent history, much of the innovation came in the form of targeted funds implementing specific strategies to deliver granular exposure. While it's certainly nice to have a couple of dozen additional tools in the box, it's also obvious that many of the new ETFs are not relevant for the majority of investors.

While most of the interesting stones have long since been turned over, there are always a handful of new additions each month that draw my attention as products I might actually use in my own portfolio. Rather than highlighting all the new ETFs from April (which would take up the better part of the day), I'll highlight three that investors may find useful.

Market Vectors Wide Moat ETF (MOAT): This ETF is built around a concept that Warren Buffett has long held at the core of his investing philosophy: wide moats. That term has long been used to describe companies that have sustainable competitive advantages -- a wide moat protecting cash flow from the forces that pose major risks to less-stable businesses. MOAT is linked to an index comprised of about 20 companies deemed to have both wide moats and an attractive valuation. Though MOAT is new, the underlying index has been around for years, and has put together an extremely impressive record. Specifically, the related benchmark has beaten the S&P 500 by about 7% annually over the past five years -- a huge gap in performance. Historical results are obviously not indicative of future returns, but that record seems to validate the compelling investment thesis behind this new product.

Emerging Markets Corporate Bond Fund (CEMB): As further evidence that the fixed-income ETF space is lagging its equity counterpart, the launch last month of CEMB was noteworthy. The lack of geographic diversification in bond portfolios has always puzzled me; investors seem to be under the impression that a portfolio consisting of Treasuries and high-quality debt of blue-chip companies represents a balanced fixed-income strategy. A truly global bond portfolio, however, requires positions that go beyond U.S. borders -- and CEMB is one tool that can be used to establish such a position. Debt of emerging markets corporations offers both attractive return opportunities (CEMB has an average yield to maturity of almost 5%) as well as limited risk; emerging-markets companies are uniquely positioned to thrive given the favorable demographic circumstances, which diminish credit risk substantially.

B-Ca Rated Corporate Bond Fund (QLTC): This ETF isn't for the risk averse, and is probably of very little use to anyone building a long-term portfolio. But for those looking to boost their current yield profile and expect the outlook for high-risk debt issuers to improve, QLTC could be a handy tactical tool. This ETF focuses on the junkiest junk bond ETFs, holding some of the lowest-rated corporate bonds out there. The portfolio is full of issues that carry a significant risk of default -- which also brings a hefty yield. QLTC has an average yield to maturity of about 7.5%, a level of current return that is tough to come by in the current environment. If credit spreads on junk bonds widen a bit, QLTC could be an interesting opportunity with impressive return potential.

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