Market Overview

Five Thinly Traded ETFs to Consider (ALD, SCIN, BNO)


Five Thinly Traded ETFs to Consider

Much is made about ETFs and liquidity. Some estimates say that exchange-traded products now account for roughly a third of all volume on U.S. stock exchanges and for one reason or another, some folks are quite critical of that fact.

That factoid might lead some to assume that the entire exchange-traded products universe is awash in liquidity. Novices are apt to see average daily volume for the SPDR S&P 500 (NYSE: SPY) of over 167 million shares or over 21.2 million shares for the Vanguard MSCI Emerging Markets ETF (NYSE: VWO) and think all ETFs have at least "average" volume.

Not true. In fact, hundreds of ETFs, some good, some bad, have low average daily turnover. This is bad news on two levels. First, an ETF that is stuck with low volume for a couple months after debut is one thing. Go a year or more as what would be considered a "thinly traded" ETF and that fund could be headed to the ETF dumpster.

Second, thinly traded ETFs often subject investors to wider bid/ask spreads and as result, higher costs. The news isn't all bad because there are some thinly traded ETFs on the market that have been making up for their lack of volume with stellar returns and some of them have the potential to keep going higher.

For the purposes of this article, "thinly traded" is less than 100,000 shares and no leveraged ETFs were included.

WisdomTree Asia Local Debt ETF (NYSE: ALD) If you want a combination of non-dollar denominated bonds and emerging markets under one umbrella, the WisdomTree Asia Local Debt ETF is definitely one fund to consider. Our bullish view of the fund has been validated this year and there's no need to worry about the fact this ETF trades less than 60,400 shares per day.

First, at $52 a share, the daily dollar volume in this fund is enough to ensure ALD will be around for a while. Second, ALD has almost $417 million in AUM, so it's not going anywhere anytime soon.

EGShares India Small Cap ETF (NYSE: SCIN) The EGShares India Small Cap and its rival the Market Vectors India Small-Cap ETF (NYSE: SCIF) will not win any volume contests. Combined, these two ETFs don't even get to 80,000 shares per day. In fact, SCIN averages just 18,000 shares a day while the WisdomTree India Earnings ETF (NYSE: EPI) is over 2.7 million. SCIN is up over 47% year-to-date and if Indian equities keep climbing, so will this ETF.

Market Vectors Gaming ETF (NYSE: BJK) Most of the U.S. casino stocks have excellent liquidity, but that hasn't trickled down to the Market Vectors Gaming ETF, the only pure-play casino ETF on the market today. It's arguably stunning this ETF has volume less than 17,100 shares per day. That doesn't change the bullish outlook for this fund. As is the case with every ETF mentioned here, use a limit order to get into BJK.

United States Brent Oil Fund (NYSE: BNO) This is another that was sort of surprising. BNO's average volume for the past three months is 57,000 shares per day. The United States Oil Fund (NYSE: USO) trades nearly 10 million shares. The low volume for BNO isn't a huge concern because with the ETF trading over $80, average daily dollar volume is more than enough to keep this fund alive. Besides, Brent keeps outperforming West Texas Intermediate so at this point, BNO is the better bet.

Guggenheim Defensive Equity ETF (NYSE: DEF) DEF makes the list because it really is an ideal defensive play as utilities and staples combine for about 40% of the ETF's weight. As a result, this fund isn't going to be a favorite of active traders. Rather, it's useful for folks with multi-month holding periods and that makes it easier to stomach average daily turnover of almost 27,000 shares.


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