Special Equity ETFs

Special equity is an interesting category of exchange-traded funds (ETFs). These ETFs represent unique, a little quirky, and sometimes expressive investment strategies. These funds make a statement. Some say “We are environmentally friendly”; others say “We can get you to a secure retirement”; and still others say “We know a new way to beat the market.”

Whatever the ETF’s message, it is sure to be different from that of ETFs that follow benchmark indexes. Every special equity ETF is based on a strategy index, and that alone makes a statement: higher fees. The expense ratios of special equity ETFs are about three times higher than the average ETF tracking a benchmark index. Although the costs are high compared to other types of ETFs, special equity ETFs are still only half the cost of comparable open-end mutual funds with similar investment strategies.

This chapter provides several examples of special equity ETFs types. Many more are not covered; they are listed in the database link at The special equity strategies reviewed here are theme funds, target date funds, actively managed index funds, leveraged beta funds, and short beta funds.

Theme funds follow indexes that focus on a particular idea, such as the environment or corporate governance. Sector rotation funds attempt to move ahead of the masses by rotating stocks around various industry sectors. Stock picker indexes are derived from the Wall Street analyst buy rating lists. ...

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