Three Off-Beat ETFs
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Venturing away from the same path everybody else follows in search of investment profits can lead to some interesting opportunities.
Some exchange-traded funds families are looking to meet this demand by sponsoring ETFs that mimic obscure indexes and bring to market their idea of what is sought. The advantage of such strategies is that the correlation of returns to the market in general tends to be very low. What this means is that the price changes in these ETFs will not behave in line with the price changes of the overall market. For portfolio risk diversification, such investment philosophies can be very useful.
The IQ Merger Arbitrage ETF (NYSEMKT: MNA) follows the IQ Merger Arbitrage Index, which is comprised of stocks that have made public announcements of acquisitions or mergers. The concept is to buy the stock of the purchaser, hold during and after the merger or acquisition has been completed, then after a certain point in time when the absorption has been “digested” close the position in expectation of a profit.
The JPMorgan Alerian MLP Index ETN (NYSEMKT: AMJ) is an exchange-traded note issued by JPMorgan that promises to pay interest and return principal at maturity. Interest paid on this note is based on the performance of the Alerian Master Limited Partnership Index. Publicly traded master-limited partnerships (MLPs) are a unique vehicle and generally are designed for the sophisticated investor that can take advantage of returns other than cash flow. One major concern with MLPs is that end of year reporting is done on IRS Form K-1, which covers all partnership reporting. Adding a K-1 requirement to a personal tax return, may complicate the end of year filing. AMJ makes this easy by holding all the MLPs and issuing a note against them.
The Guggenheim Spin-Off ETF (NYSEMKT: CSD) acquires shares in companies that have been spun-off from a parent corporation. Included in this grouping are stocks that have had a partial initial public offering or a carve-out. CSD is matched to the Beacon Spin-Off Index and makes changes to its holdings in sync with this index. The concept of seeking profit is by buying shares in unwanted companies in the belief that these shares will be undervalued and that over time will appreciate in price.
Adding non-correlated strategies, such as these listed above, to an investment portfolio adds the combined benefit of risk reduction and returns enhancement. When such investments perform when others don’t, downside risk is reduced. If these investments perform very well, then additional profits may be attained during weaker overall market conditions.
Such alternative asset strategies are worth a close look. Making an allocation to such programs either with the help of an advisor on your own may prove to be very beneficial in the long-term.
jlstouffer has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
Jeffrey L. (Jeff) Stouffer is an Investment Advisor Representative and manages the Alexandria VA office of Kingsview Asset Management. As a practicing financial advisor serving the needs of individuals and small businesses, he believes in using a wide range of investment strategies, including alternative investments. All strategies are client centric and unique. He can be reached at firstname.lastname@example.org and is available to answer any questions about this combined approach.