Exchange-traded funds (ETFs) were first launched in 1993 and have revolutionized the investment industry. ETFs are a useful and convenient way to track the investment performance of a basket of assets. Similar to an index fund, this is beneficial for investors because it reduces the risk associated with individual stocks. For example, if you had owned Lehman Brothers stock in 2008, there would be nothing left but the associated financial ETF has doubled since 2008 due to the success of banks that didn’t go under.
I love ETFs because it allows individual investors to diversify their portfolio and focus on their interests. They have ETFs that track stocks in various countries (EWZ — Brazil, INDA-India, EWG-Germany), different industries (VEGI-Agriculture, DRIV-Electric cars), and there’s even an ETF that does the opposite of Jim Cramer (SJIM).
The ETF market is wildly popular, and continuing to grow. There are few industry-specific ETFs that I think should exist because of their likelihood of beating market returns for years to come.
These are the 5 ETFs that don’t exist, but should…
1. Storage Facilities
Believe it or not, storage facilities are one of the most profitable business models out there. The average storage facility corporation has a 50% net profit margin! The average profit margin of a S&P 500 company is only 12%. Just think about — these companies are receiving recurring revenue to store people’s junk for years with minimal expense involved. I was recently at a Life Storage and asked about an old car being stored there; it apparently had been there untouched for 14 years and the owner is being charged $150 / month!
These businesses are money makers, and their stock performance reflects that fact. Over the past 10 years, a basket of storage facility stocks had an average annual return of 19% compared to the 12% by the overall stock market.
2. Credit Cards
The only other industry that can hold its weight against storage facilities is the credit card industry. By operating payment networks, credit cards charge 2% on every transaction and charge hefty interest (20%) on late payments. The business model is quite lucrative, Visa and Mastercard consistently earn 50% profit margins.
Similar to the performance of storage stocks, credit card stocks have averaged a 19% annual return since 2010.
One major risk for this industry is that Congress has been targeting some of the anticompetitive practices used by these companies to ensure protect high margins. But I think we all know that Congress is not going to accomplish much anytime soon.
3. Waste Management & Recycling
Believe it or not, trash is a trillion-dollar industry. It’s not something we think about often, but that weekly trash service is accumulating profits for waste management companies. It’s a business that is stable through economic booms and recessions. It’s a valuable business, as most of us don’t want to deal with our own junk.
While not as profitable as storage facilities or credit cards, these companies have provided exceptional returns because of their consistent and stable business models. Since 2010, trash stocks have beaten the market average and delivered average annual returns of 16.5%.
4. Discount Stores
Do you know what the best performing stocks were in 2008?
When the entire stock market was down 40%, Family Dollar and Dollar General were up 20%! Recessions actually help these companies, and economic booms are no harm either. While most stocks tanked in 2022, these companies are at all time highs. Rather than going to Nordstrom, consumers are finding deals at TJ Maxx; rather than going to Target, consumers are switching to Walmart.
If there was a discount store ETF, investors could have found shelter from the pain of this last year because Walmart, Dollar General, Dollar Tree, TJ Maxx, and Ross Stores are all trading near all-time highs!
Despite the controversies of coal, it still provides over 10% of the energy produced in the United States. Lack of investment in the industry is causing coal prices to go sky high as strong demand outpaces supply. In December 2020, VanEck was pressured by environmentalists to close the only existing Coal ETF (KOL) and replaced it with a clean energy ETF (cleverly named SMOG).
Let’s see their compared performance since December 2020…
Yeah… that’s 12x better. Coal stocks have been the best performing industry over the past 2 years and there has been no ETF to capture that advantage. Let’s bring it back.
In conclusion, these are the 5 ETFs that should exist: