Best Long-Term Performance Miscellaneous Sector ETFs 1.1

What exactly is a Miscellaneous Sector ETF? Morningstar defines this category as: “Miscellaneous sector portfolios invest in specific sectors that do not fit into any of Morningstar’s existing sector categories and for which not enough funds exist to merit the creation of a separate category.” ETFs that fit into this category contain companies that deal with Clean Energy, Water, Progressive Energy, Clean Technology, Alternative Energy, Uranium & Nuclear Energy, Coal and Solar Energy. The oldest ETF in the Miscellaneous Sector category is the PowerShares WilderHill Clean Energy Portfolio (PBW). The newest and most heavily traded ETF that I researched for this article is the PowerShares – Guggenheim Solar ETF (TAN).

Why invest in these Miscellaneous Sector ETFs? For the Deep Value ETF Accumulator, the reason is somewhat simple. I am a worldwide multi-sector investor. I am not willing to leave any stone unturned when searching for ETFs that have the potential to add Alpha to my portfolio while also diversifying the portfolio even further. One of my readers has turned me on to looking into Infrastructure and Water related ETFs. While researching infrastructure ETFs, I found that only 2 meet my criteria of being 10 years old or older. And both of those ETFs have continuously underperformed since inception. While researching the Water ETFs, I found them hidden in a category name “Miscellaneous Sector” by Morningstar. Most of the Miscellaneous Sector ETFs also underperform but the Water ETFs seem to do okay.

Although many Miscellaneous Sector ETFs did underperform the general market, I have completed a thorough back-test on all 13 ETFs available in this category that are 10 years old or older. Here are the Deep Value ETF Accumulator rankings based on that research:

Source: Morningstar

Three of the top four Miscellaneous Sector ETFs were Water ETFs and the other one is a Clean Technology ETF.

FIW – First Trust Water ETF
CGW – PowerShares S&P Global Water Index Portfolio
PHO – PowerShares Water Resources Portfolio
PZD – PowerShares Cleantech Portfolio

Here is the performance of the top 4 Miscellaneous Sector ETFs when compared head-to-head:

FIW vs CGW vs PHO vs PZD: June 2007 through April 2018

Source: Portfolio Visualizer

Here is the performance of the top 3 Miscellaneous Sector ETFs when compared to an S&P 500 index fund:

FIW vs CGW vs PHO vs S&P500: June 2007 through April 2018

Source: Portfolio Visualizer

To get a better understanding of what’s inside these Miscellaneous Sector ETFs, let’s look each ETF’s fund objectives and their individual performance vs an S&P 500 fund.

FIW: The First Trust Water ETF is an exchange-traded fund. The investment objective of the Fund is to seek investment results that correspond generally to the price and yield, before fees and expenses, of an equity index called the ISE Clean Edge Water Index. The ISE Clean Edge Water Index is a modified market capitalization-weighted index comprised of exchange-listed companies that derive a substantial portion of their revenues from the potable and wastewater industry. The Index begins by establishing the total population of stocks in the potable and wastewater industry and eliminates stocks which do not meet the Index’s baseline eligibility requirements. To meet Index eligibility, a stock must satisfy market capitalization, liquidity and weighting concentration requirements. The Index selects the top 36 stocks in the industry by market capitalization. The Index is rebalanced on the application of the above model on a semi-annual basis.

FIW vs S&P500: June 2007 through April 2018

Source: Portfolio Visualizer

CGW: The PowerShares S&P Global Water Index Portfolio (Fund) is based on the S&P Global Water Index (Index). The Fund will invest at least 90% of its total assets in stock and American depositary receipts (ADRs) that comprise the Index. The Index is comprised of developed market securities including water utilities, infrastructure, equipment, instruments and materials. The index is computed using the net return, which withholds applicable taxes for non-resident investors. The Fund and the Index are rebalanced semiannually.

CGW vs S&P500: June 2007 through April 2018

Source: Portfolio Visualizer

PHO: The PowerShares Water Resources Portfolio (Fund) is based on the NASDAQ OMX US Water Index. The Fund generally will invest at least 90% of its total assets in common stocks and American depositary receipts (ADRs) of companies in the water industry that comprise the Underlying Index. The Underlying Index seeks to track the performance of US exchange-listed companies that create products designed to conserve and purify water for homes, businesses and industries. The Fund and the Index are rebalanced quarterly and reconstituted annually in April.

PHO vs S&P500: January 2006 through April 2018

Source: Portfolio Visualizer

PZD: The PowerShares Cleantech Portfolio (Fund) is based on the Cleantech Index™ (Index). The Fund will normally invest at least 90% of its total assets in stocks of clean technology (or cleantech) companies that comprise the Index and American Depository Receipts based on the stocks in the Index. The Index is designed to track the leading cleantech companies, from a broad range of industry sectors that offer the best investment returns. The Cleantech Index is a modified equally weighted index composed of stocks (and ADRs of such stocks) of publicly traded cleantech companies. The Fund and the Index are rebalanced and reconstituted quarterly.

PZD vs S&P500: November 2006 through April 2018

Source: Portfolio Visualizer

As you can see in the data above, the alternative energy ETFs in the Miscellaneous Sector category have not been able to produce good returns. The Water ETFs have done better, but only FIW has had any significant outperformance. I believe FIW can add some additional diversification to your portfolio and it does have the potential of adding some Alpha to sweeten the deal if there are any additional risks involved with owning Water related companies.

Thanks for reading this article. If you found it useful, please share it.

Respectfully yours, Micah McDonald, aka the Deep Value ETF Accumulator

Disclosure: We do not currently own any shares of any funds mentioned in this article. We do intend to buy shares of FIW in the future. I am not a Registered Investment Advisor. Please do your own due diligence or seek the assistance of a professional advisor prior to investing in any fund mentioned in this article.