Too Many Useless ETFs

In order to be classed as a useless exchange traded fund (ETF) we need to satisfy two conditions. Let us refer to them as a UETF.

(1) A UETF has to be a thinly traded managed retail product: That means industry pros like portfolio managers and investment advisors (IAs) won’t go near these things and if they avoid them so should private investors. The big problem for the industry pros is they never know what the manager is doing with the assets inside the fund. In many cases the trading activity is almost silly.

(2) A UETF is usually so complex you figure out what it is. Is it a bond fund, an equity fund or some kind of a hybrid equity / bond / futures hedge fund?

Currently the industry leader for the production of UETFs is the folks at Horizon Exchange Traded Funds. Currently the investment industry’s most useless award goes to the Horizons Gartman ETF trading on the TSX under symbol (HAG). According the Horizons the HAG gives investors direct exposure to the investment strategies of The Gartman Letter. The ETF uses equity securities, futures contracts and exchange-traded funds to provide the ETF with long and short exposure to multiple asset classes which may include but are not limited to global equities, commodities, fixed income and currencies. It seems the fund does everything except provide positive returns – since inception from March 2009 this turkey has a negative annualized return of -6.6%. A buy and hold of the Dow Industrials over the same time period generated a positive annualized return of 9.2% - not including the dividend income! By the way at 3:20 pm Monday May 14, 2012 the HAG has traded a whopping 800 shares.

Our chart this week is that of the weekly closes of the HAG plotted above the Dow Jones Industrial Average. No need to explain this train wreck. Next post we look at another useless exchange traded fund – the Horizons Seasonal Rotation ETF (HAC)