Market Overview

Bigger Isn't Always Better With ETFs: Part IV


It has been a while, but we're back with another installment of our five-part series “Bigger Isn't Always Better With ETFs and there are still plenty of scenarios investors should consider before aimlessly running into an ETF simply because of its size.

Previously, we've looked at commodities, emerging markets and sector funds on a case-by-case basis. This time around, we're opening this exercise up to the entire ETF universe. If you're a big fund with an unheralded, but legitimate smaller rival, watch out because we're going to find that rival and the reasons why smaller may in fact be better.

Without further ado, let's get on with the newest look into the smaller ETFs that trump their more popular rivals.

Dividends On The Cheap: In an environment where investors are starved for income and dividend stocks are cool again, it seems like a new dividend ETF pops up every week. That's hyperbole, but plenty of new dividend ETFs have been sprouting up this year. One of them is the Schwab U.S. Dividend Equity ETF (NYSE: SCHD), which isn't even two months old yet.

This is strictly a cost play. SCHD isn't that far off from bigger, more established dividend ETFs from iShares, State Street Global Advisors and Vanguard, but the Schwab offering is cheaper, actually a lot cheaper than the comparable iShares or SPDR ETFs.

Hungry For Something Better: The PowerShares Dynamic Food & Beverage ETF (NYSE: PBJ) isn't exactly unknown in the world of staples ETFs with almost $189 million in assets under management. There are some flaws in this ETF. Namely, it offers no exposure to Nestle (PK: NSRGY), the world's largest food company. The smaller, newer Global X Food ETF (NYSE: EATX) does.

In fact, EATX is more diverse geographically and probably has more legitimate takeover targets than PBJ does. Oh yeah, EATX has slightly outperformed its larger rival year-to-date.

Down On The Farm: If one were to glance only once at equity-based agriculture ETFs, they might think the conversation begins and ends with the Market Vectors Agribusiness ETF (NYSE: MOO). That's understandable given MOO's size, but that doesn't mean the ETF doesn't have its rivals. The IndexIQ Global Agribusiness Small-Cap ETF (NYSE: CROP) has outperformed its large-cap rival since coming to market earlier this year and is the better bet for industry consolidation.

For a more pure play on farm equipment, the Global X Farm ETF (NYSE: BARN) is worth a look and that fund has performed inline with MOO this year.

Bull case: In the case of SCHD and EATX, those funds and their larger competitors are OK in this environment as they're intended for conservative investors. The farm players are higher beta and need a strong uptrend to boost them higher.

Bear case:

We're probably in the bear case right now for the agribusiness ETFs. If the more conservative plays drop sharply, it could mean greater declines are on the way for the broader market and cash might be the only place to hide.

Posted-In: Long Ideas News Sector ETFs Broad U.S. Equity ETFs Short Ideas Dividends Dividends Specialty ETFs Best of Benzinga


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