How Ridiculous Can ETFs Get? A Fictional Cat-Themed Product Makes Insane ROI

Sorry dog lovers, but investing in "cats" is clearly the better option.

Given the seemingly never-ending list of exchange traded funds available to investors, Bloomberg News' Dani Burger created an exchange traded product designed for cat lovers.

Burger's cat-themed ETF simply invests in stocks that have the word "cat" in them. One of the most notable names in the index is the Dow component Caterpillar Inc. CAT but also included communiCATion companies.

The rules are simple: everything about the fictional ETF has to be legitimate and by the book to the point where it can qualify to trade as an actual ETF. The purpose of this experiment is to see if a grouping of companies that share three similar letters can perform better than professionally managed products.

Don't Get Too Excited

The net result? A mind-boggling return of nearly 850,000 percent for a six-year period ending April 2017. Granted, the cat-themed ETF had exposure to low liquidity penny stocks which skewed the results. For instance, the equal-weighted fund had exposure to an otherwise untradeable OTC-listed stock CATKILL LITIGATIO TRUST UNITS CATKU which gained 79,000 percent this year to trade at just one penny.

Once the ETF removed exposures to any stock trading with a valuation of less than $10 million, the index would have returned 42 percent over the past five years - notably short of the S&P 500's total return of 105 percent.

Finally, Andrew Ang, head of factor investing strategies at BlackRock told Bloomberg that once a single parameter is removed, in this case the market cap size restriction, the fund likely isn't robust enough to stand the true test of time.

Related Links:

Interesting Activity In A Regional Bank ETF

These Sector ETFs Could See June Gloom