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Popular ETFs You Should Never Use: Pro

Exchange traded funds are among the more popular ways to trade. Called ETFs on the Street they allow investors to diversify risk through a basket of stocks.

A pro like trader Steve Grasso of Stuart Frankel who works on the floor of the NYSE, can barely move a foot or two without hearing “Buy the XLF or get me out of the GLD, now!’

But these and other popular ETFs may not always be your best bet.

According to Matt Hougan, IndexUniverse president of ETF analytics, there are alternative ETFs that aren’t as widely known, but may actually better serve your needs. He profiled five of them on CNBC's Fast Money. They follow:

Sector Widely Traded Hougan’s Alternative
Gold GLD IAU

Looking at the GLD, Hougan says the IAU holds exactly the same thing. “It’s plenty liquid and owning it is about half the cost of the GLD.”

Sector Widely Traded Hougan’s Alternative
Financials XLF IYF

Hougan says this is something of a popularity content. “People know the XLF ." However, the XLF only tracks large caps. (Click here to see top holdings on Yahoo! Finance.) If you want exposure to the entire banking sector Hougan recommends the IYF for “the full spectrum.”

Sector Widely Traded Hougan’s Alternative
Junk Bonds JNK HYG

Hougan says most investors don’t know that JNK is further out the junk spectrum. “The HYG holds slightly higher and safer securities," he says.

Sector Widely Traded Hougan’s Alternative
Dividend Equity DVY HDV

“DVY was first, so everyone knows it,” explains Hougan. And the ticker is memorable. However, he explains that HDV focusses on higher yielding securities as well as lower volatility securities making it preferable for many retail investors.

Sector Widely Traded Hougan’s Alternative
Small Caps IWM VB

Hougan doesn’t like the IWM because it tracks the Russel 2000 and is subject to rebalancing. “Instead VB provides exposure to similar companies but avoids the rebalancing issue.”

Read More from Fast Money:

> Simple Strategies Behind Supersized Successes

> 10 Top Stocks for the Long-Term Investor

> Top Apple Related Stocks for 2012


Posted by CNBC's Lee Brodie






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Trader disclosure: On June 13, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Tim Seymour is long BAC; Tim Seymour is long INTC; Tim Seymour is long SBUX; Brian Kelly is long UUP; Karen Finerman is long AAPL; Karen Finerman is long BAC; Karen Finerman is long JPM; Karen Finerman is long WMT; Karen Finerman is long TGT; Karen Finerman is long RIMM calls; Karen Finerman is long M; Karen Finerman is short SPY; Karen Finerman is short IWM; Karen Finerman is short MDY; Dan Nathan is long AAPL; Dan Nathan is long BAC; Dan Nathan is long JPM; Dan Nathan is long MS; Dan Nathan is long IBM; Dan Nathan is long RIMM; Dan Nathan is long WMT; Dan Nathan is long FB

For Michael Weinstein
JP Morgan makes a market in JNJ

CNBC.com with wires.

Symbol
Price
 
Change
%Change
DV
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GLD
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HDV
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HYG
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IAU
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IEV
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IYF
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JNK
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VANG SMCAP
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SPDR FIN SEL
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