12 Niche ETFs to Trade in 2012

http://www.moneyshow.com/trading/article/33/TradingIdea-25819/12-Niche-ETFs-to-Trade-in-2012/

It's practically a sport among ETF critics these days, and no, we're not talking about the tired practice of bashing leveraged ETFs. That went out of style with shoulder pads and the Miami Vice look. We're talking about bashing niche ETFs.

Apparently, ETF critics can tolerate the existence of basic fare such as the SPDR S&P 500 (SPY) or other broad market index ETFs. But then along comes an ETF like the Global X Fishing Industry ETF (FISN) and some folks get a little surly.

Like it or not, niche ETFs will probably keep growing in number, and the point of this exercise isn't to praise or condemn their existence. Rather, it's merely to point out which ones might be worth your time in 2012.

Some of these are pretty light on volume, so use caution. Here are my picks, in no particular order:

First Trust ISE Cloud Computing Index Fund (SKYY): SKYY has taken its shares of dings, and yes, it's down since its debut. However, did you know SKYY has outperformed the following major tech plays in the past three months: Apple (AAPL), Amazon.com (AMZN), and the PowerShares QQQ Trust (QQQ)?

Over that time, the results aren't even close. SKYY is the clear winner, and the fund’s $63.2 million in assets under management (AUM) indicates someone believes in this fund.

Guggenheim Spin-Off ETF (CSD): While the Guggenheim Spin-Off ETF doesn't immediately add companies that have recently been spun off, the sheer amount of spin-offs conducted in 2011 means that the ETF could add several new constituents next year. Plus, the ETF can make a claim a lot of others can't: It's positive year-to-date.

Guggenheim Insider Sentiment ETF (NFO): We giveth and we taketh away. For as much as we like CSD, we're not huge fans of an ETF that tries to capture insider buying trends. However, NFO's almost $110 million in AUM is pretty impressive for an ETF that is arguably quite obscure. An allocation of over 17% to financials is enough to pass on this ETF until that sector gets its act together.
IndexIQ Merger Arbitrage ETF (MNA): The ticker probably deceives some folks into thinking this ETF is a play on increased mergers and acquisitions activity, but the name tells us this is an arbitrage play. This is a very niche concept, but give MNA some love. The ETF has been a better play than buying investment banking stocks and hoping that they'll rise on increased M&A volume.

First Trust NASDAQ CEA Smartphone Index Fund (FONE): FONE is another niche tech sector fund that has taken its lumps this year, though in this case, those lumps might be deserved. The statistics show a bull case for smartphone stocks in the coming years, but FONE has been hung up on to the tune of almost 23% this year. Just over $13 million in AUM will keep the ETF alive for a while, but the performance needs to turn around in 2012.

iShares MSCI USA Minimum Volatility Index (USMV): Yes, we're quite comfortable calling a minimum volatility ETF a niche ETF. USMV isn't even two months old at the time of writing, so we'll give it a break on just $5.1 million in AUM. iShares typically doesn't have ETFs that close, and investors might embrace USMV when they realize that the index it tracks has frequently outperformed the MSCI USA Index.