A Narrow, Pricier ETF I May Buy
Author: Allan Roth
The Direxion Low Priced Stock ETF (LOPX) owns only 50 stocks and has an expense ratio more than 10 times that of U.S. stock ETFs I typically recommend, yet I still may buy a little. When Heather Bell recently wrote about a new fund targeting penny stocks, it caught my eye. Here’s what this new ETF is and why I’m interested.
According to the Direxion website, LOPX seeks investment results, before fees and expenses, that track the Solactive Two Bucks Index. I had no clue what that was and thought it would be one of the 1 million+ indexes in existence that I wouldn’t touch. But upon further reading, I had an aha moment.
The Direxion Low Priced Stock ETF offers exposure to the 50 companies trading between $2 and $5 at the time of selection.
It must meet the following criteria:
- A minimum average daily value traded of $1 million over 3 months.
- A market capitalization of at least $85 million.
- A closing price between $2.00 and $5.00 (August selection date), or a closing price between $1.25 and $10.00 (February, May, and November selection dates).
- Securities that have had a reverse stock split between the last and current selection day are not eligible for inclusion.
Since I’m all about ultra-low-cost, diversified, cap-weighted stock ETFs owning thousands of stocks with expense ratios of 0.07% or lower, why did this narrow ETF with a 0.50% expense ratio interest me?
Because I’ve written before that beneath my dull exterior beats the heart of a gambler who just can’t resist acting on the thrill-seeking urge that indexing doesn’t satisfy. I try to buy one or two stocks a year with the following criteria for the fun part of my portfolio:
- After large price declines
- Priced below $10, preferably $5, which forces many institutional investors to dump
- Media noting money managers being fired for holding a particular stock
- Accounting scandals
- Insider trading allegations
- TV gurus saying the company is dead
I consider it like venture capital investment, where they would expect about five of every 10 investments to go belly up and hope to get one or two home runs. I talk about my home runs such as a 5000% return on Priceline.com, now Booking.com (BKNG) and other winners, and try to forget my losers such as Eastman Kodak and United Airlines.
You can read the complete story on : https://www.etf.com/sections/index-investor-corner/narrow-pricier-etf-i-may-buy?nopaging=1