ETF Wrap: Do you really know what’s in your ETF?

Send tips, or feedback, and find me on Twitter at @mdecambre to tell us what we need to be jumping on. Sign up here for ETF Wrap.

The good…

…and the bad

What’s inside your ETF

The need for investors to dig into what makes up their exchange-traded funds has been a major focus for CFRA’s Todd Rosenbluth, and it’s an important practice.

In his most recent, research report, Rosenbluth noted that some funds that are described as holding information technology stocks aren’t always as tech-focused as an investor might appreciate, especially since some companies are classified as technology that are actually communication services, such as Alphabet Inc.
GOOGL,
+1.51%
or consumer discretionary, such as Amazon.com Inc.
AMZN,
-2.15%.

Rosenbluth says that the QQQ, for example, tracks the 100 largest nonfinancial
companies on the Nasdaq but only 49% of assets are in companies classified as tech stocks based on commonly used classification standards, with 19% and 18%,
respectively, in communication services and consumer discretionary, and a smidgen in healthcare.

That isn’t a bad thing, but that should inform the investment strategies of those looking for pure plays, notes the CFRA analyst, in a research report.

The analyst recommends that investors explore large growth-oriented ETFs, if getting exposure to large-cap tech is the aim, as an alternative. He points to funds Vanguard Growth ETF
VUG,
+0.45%
and iShares S&P 500 Growth ETF
IVW,
+0.61%.

“It is easy to think you know what is inside an ETF, given they often track well-known benchmarks and are labeled with common terms,” Rosenbluth wrote.

“However, CFRA believes investors need to look closely so they position their portfolios to fit their objectives,” he writes.

Visual of the week

So, we’ve finally got a bitcoin ETF. However, the NYDIG chart above illustrates one of the bigger criticisms of a futures-based bitcoin ETF. The ProShares Bitcoin Strategy ETF
BITO,
+2.07%,
which made its debut last Tuesday, already is underperforming bitcoin
BTCUSD,
-2.29%.
As a reminder, futures are derivatives investments that offer exposure to an underlying asset and often diverge slightly from that underlying asset because investors use them to bet on future prices.

NYDIG notes that since BITO’s launch, referring to the ticker symbol of the ProShares bitcoin ETF, “the fund has lost 3.59% while spot bitcoin has lost 1.68%, a difference of 1.91% in just over a week,” based on prices as of Tuesday afternoon.

On the upside, BITO has attracted some $500 million in each of the fund’s first two days, bringing its total assets to $1.2 billion.

Greener QQQs

It seems everything is attempting to go green, lately.

Invesco is kicking off a pair of green ETFs that riff off the success of its Nasdaq-100 funds, known as the Invesco Trust Series I
QQQ,
+0.49%,
or QQQs. The environmental, social and governance, or ESG, funds are called the Invesco ESG Nasdaq 100 ETF
QQMG,
+0.67%
and the Invesco ESG Nasdaq Next Gen 100 ETF
QQJG,
+0.17%.

Invesco has said that the aim is to offer a product that meets the values and principles of prospective, younger investors who are proving more attuned to environmental concerns.

The interesting thing about the ESG offerings from Invesco is the fact that the weighting of some of the constituents, including Tesla Inc
TSLA,
+3.43%.
and Microsoft
MSFT,
+2.24%,
for example, might be surprising to some.

Good ETF Reads