Niche ETFs focused on everything from sports teams to psychedelic drugs are proliferating

7 exotic ETFs for everything from coffee to psychedelic drugs

February 10, 2022 6:26 PM

The hands-off approach to investing has ballooned over the past decade, thanks in large part to exchange-traded funds — low-cost, higher-yielding investments that trade like stocks and “passively” mirror a benchmark, like the Standard & Poor’s 500 Index of top American companies. Three gigantic ETFs that track that blue-chip gauge — the SPDR S&P 500 ETF Trust, the iShares Core S&P 500 ETF and the Vanguard S&P 500 ETF — collectively have over $1 trillion in assets. Those basic and — let’s be honest — boring funds cost investors a teeny 0.09%, 0.03% and 0.03%, respectively, and have handed investors hefty returns in the 13-year bull market.

So it’s perhaps ironic that amid the strong performance of those three behemoths — more than 15% a year over the past 10 years, according to Morningstar data — a new variety of ETF is aiming to put a 21st-century twist on the passive revolution. So-called actively-managed ETFs aim to not to match the market but beat it by having a fund manager actively pick stocks that follow a bespoke theme or custom benchmark. With secret trading strategies and sometimes-opaque disclosures about what they hold, their fees are typically much higher, sometimes as much as 30 times or more.

Active funds are on the cusp of major growth, according to a recent report by research firm Cerulli Associates, so both investors and their financial advisors are likely to see more of them in 2022. They’re proliferating as customization and personalization become major guideposts for advisors seeking to carve out niches with clients. So there's little surprise that, unlike plain-vanilla ETFs, they can track some very niche things. Like breakfast. The Direxion Breakfast Commodities Strategy ETF, not yet launched, aims to mirror an index focused on coffee, orange juice, wheat and lean-hog futures.

Here’s a look at seven exotic ETFs. All performance and cost data is from Morningstar. Returns are calculated after fund expenses as of Jan. 31, 2022, since the fund began operating.

AdvisorShares VICE ETF

The AdvisorShares VICE ETF is unabashedly naughty. It holds stock in companies that purvey what its operator calls “the vices that people love,” including alcohol, tobacco, gaming, food and beverage, restaurant and hospitality, and what it calls “other vice-related business activities.” Those include manufacturers of semi-automatic rifles, like Smith & Wesson and Sturm Ruger, according to its top holdings.

Launched in December 2017, the $11.5 million fund, known by its ticker VICE, is run by AdvisorShares, an operator of actively managed ETFs based in Bethesda, Maryland. Costing a hefty 0.99%, it had gained over 6% over its lifetime through Jan. 31.

Roundhill Pro Sports, Media and Apparel ETF

The Roundhill Pro Sports, Media and Apparel ETF, known by its ticker MVP, holds shares in publicly traded professional sports teams, media and clothing companies. Holdings include Fila, Adidas, Nike, Madison Square Garden Sports (the owner of NBA’s New York Knicks), and European soccer teams Juventus F.C. and Manchester United. At nearly 6.8%, Liberty Media, which owns the Formula One racing franchise and MLB’s Atlanta Braves, is the fund’s biggest holding.

Launched in March 2021 with a 0.75% expense ratio, the $4.8 million fund lost more than 16% as of Jan. 31.

Global X Health & Wellness ETF

The Global X Health & Wellness ETF seeks to “correspond generally” to the Global Health & Wellness Thematic Index. That gauge, developed by Indxx, a New York-based developer of — yes — indexes — tracks companies that manufacture or sell fitness equipment, athletic clothing, nutritional supplements and organic foods.

Around since 2016, the $37.4 million BFIT fund, whose expense ratio is 0.50%, has gained nearly 11% over its lifetime through Jan. 31.

Defiance Digital Revolution ETF

Nonfungible tokens are digital collectibles stored on a blockchain, the computer systems underpinning Bitcoin and other cryptocurrencies. Everybody from artists and musicians to corporations and ordinary people are creating them; one of Procter & Gamble’s “digital toilet paper” NFTs for its Charmin bathroom tissue brand sold last year for a reported $4,100. The world’s most expensive NFT, “Everydays: The First 5,000 Days,” by a South Carolina graphic artist known as Beeple, sold for more than $69 million at auction house Christie’s.

The Defiance Digital Revolution ETF, the first fund dedicated to NFTs, launched in December 2021; it’s down nearly 41%. But so far, it has sucked in nearly $11.5 million from investors who want a piece of one of the 21st century’s oddest crazes. Costing 0.65%, the fund, whose ticker is NFTZ, is run by Defiance ETFs, an independent advisory firm and fund provider in Miami.

Roundhill Meme ETF

Like NFTs, so-called meme stocks, or shares in companies that gain a cult-like following in online chat groups and other forums, are so very 21st century. GameStop, movie chain owner AMC and online brokerage Robinhood are the best-known examples. Meme stocks are also synonymous with extreme rises and falls — over two weeks in January 2021, GameStop suddenly spiked 10-fold to around $325 as investors on Reddit’s WallStreetBets forum pushed share prices up in a bid to thwart Wall Street short sellers, who had placed bets on the shares falling. Except for investors who cashed out early, Wall Street ultimately had the last laugh, as GameStop plunged.

Launched in December 2021, the $1.8 million Roundhill Meme ETF (ticker: MEME) tracks a bespoke index of U.S. meme stocks, including Peloton, Beyond Meat and DraftKings. The fund, with expenses of 0.69%, was down more than 28% as of Jan. 31.

The PSYK ETF

Guess what The PSYK ETF holds shares in. Yes, it’s companies involved in the medicinal psychedelic drug industry. But not just any drugs. The fund, launched on Jan. 31, 2022, by Sarasota, Florida-based Elemental Advisors, doesn’t include companies that focus on recreational or non-medical compounds or therapies, such as those involving cannabis. Instead, it seeks to track domestic and foreign publicly traded companies focused on novel (and legal) therapies to treat conditions including bipolar disorders, schizophrenia, dementia and psychosis.

PSYK (its ticker) is run by Exchange Traded Concepts of Oklahoma City, Oklahoma, and seeks to track the performance, before fees and expenses, of the Elemental’s Enhanced Consciousness Index of companies involved in the psychedelic drug business. The tiny $441,000 fund, with expenses of 0.9% (but also a waiver of 0.15% through early 2023) is too new to have any public returns.

VanEck Future of Food ETF

Some investors are obsessed with where their food will come from. The VanEck Future of Food ETF, launched on Nov. 30, 2021, focuses on companies involved in “sustainable agriculture and food products and services.”

With a cost to investors of 0.69% and holdings including Oatly Group, Deere and commodities giant Bunge, the $2.3 million fund (ticker YUMY) lost a little over 7% through Jan. 31.