The Best “Exotic ETFs” to Buy in 2019

Overweighting certain sectors through ETFs can be a great way to spice up a boring core portfolio…

One of the best parts about ETFs is that aside from cheap building blocks, they’ve democratized asset classes. Bond types and strategies once reserved for high net worth individuals or institutional investors can now be had by all. More importantly, they can be had for low-cost and with single-ticker tradability. ETFs can truly provide the best of both worlds.

By adding some of the top performers in these exotic ETFs, investors can potentially do better than just average and boost their overall returns.

With that in mind, here are ETFs to buy for a little boost to your portfolio in 2019.

#1: Invesco S&P 500 Equal Weight ETF (RSP)

If you’re looking to beat the index and derive a little more return than average, then you can’t “look” like the index. And that’s just what the Invesco S&P 500 Equal Weight ETF (NYSEARCA:RSP) is designed to do. RSP takes the venerable S&P 500 and reconfigures it.

One of the problems with buying ETFs that track the S&P 500 and most indexes for that matter, is that are market-cap weighted. The biggest stocks dominate assets. As a result, they have more pull on the indexes overall return. Smaller stocks (read: faster growing) can’t shine in the big benchmarks. RSP eliminates that problem by equal weighting all the S&P 500’s constituents.  Everyone — from Exxon (NYSE:XOM) to Cintas (NASDAQ:CTAS) — are capped at roughly 0.20% of assets. This allows the smaller stocks to pull and push the index.

What it really does is boost returns.

RSP has managed to produce a 16+% average annual return over the last decade. That’s two full percentage points better than the bread and butter S&P 500. The drawback is that RSP has been a bit more volatile. But when combined in a portfolio, RSP’s bumps can be smoothed out. And that makes it a great addition for 2019.

#2: iShares Interest Rate Hedged High Yield Bond ETF (HYGH)

It’s no secret that the Federal Reserve has started to raise rates. For investors leaning on bond ETFs for income that can be a huge problem. After all, bonds fall when rates rise. Getting a good yield today, while not losing money as the Fed increases is a huge concern. But there are some ETFs to buy that can help on this front.

The iShares Interest Rate Hedged High Yield Bond ETF (NYSEARCA:HYGH) is a great example.

HYGH is what’s called a long/short ETF. The fund will sell or short a position in various interest rate swaps. That short position provides some cushion as bond prices fall in the wake of rising interest rates. At the same time, HYGH will go long a position of high-yield bonds — through a position in the uber-popular iShares iBoxx High Yield Corporate Bond ETF (NYSEARCA:HYG) — to pick up some current big income. Essentially, the long/short format allows investors to eliminate much of the duration risk, while still getting a pretty high dividend yield. And since the ETF is actively managed, the duration/swap portion of the portfolio is tailored to the current rate environment. All in all, HYGH provides a great exotic ETF to help spice up your core portfolio.

Expenses for HYGH run at just 0.54% — or $54 per $10,000 invested — and yields a healthy 5.56%.

First Trust Health Care AlphaDEX Fund (FXH)

Overweighting certain sectors through ETFs can be a great way to spice up a boring core portfolio and one of the best sectors around could be the healthcare sector. While a lot has been said about drug pricing and the overall cost, the reality is the split congress isn’t going to change too much next year and demand continues to rise for a variety of healthcare needs. That makes healthcare sector stocks and ETFs big buys.

Those investors looking to score more from their healthcare ETFs should turn to the exotic First Trust Health Care AlphaDEX Fund (NYSEARCA:FXH).

FXH tracks a propriety index that focuses on growth elements. This includes “three, six and 12-month price appreciation, sales to price and one-year sales growth.” It then adds a few value screens to tilt the portfolio towards GARP-style investing. What it does is create a portfolio, unlike traditional healthcare ETFs. Top holdings currently include Centene Corporation (NYSE:CNC) and Dexcom (NASDAQ:DXCM). There are no big plodded pharma companies to be found. FXH updates its portfolio quarterly to keep the growth going.

As a result, the ETF has been a great addition of those investors seeking more “oomph” from their portfolios. Over the last decade, FXH has been able to return nearly 20% per year. Expenses for the exotic ETF run at just 0.63%.

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