Is This Niche ETF a Value Trap?

So many niche ETFs, so little time. So many in fact that there is now a long list of niche ETFs for investors to consider in 2012.

Indeed, the universe of ETFs with the niche designation grew by leaps and bounds last year and one of the new entrants to that fray was the Russell Low P/E ETF (NYSE: LWPE). Count the Russell Low P/E ETF among the investment discipline ETFs rolled out by Russell last year, but there's more to the story than just a new ETF.

LWPE tracks the Russell U.S. Large Cap Low P/E Index and the ETF has all the looks of a value investor's delight. The expense ratio of 0.37% is fair, meaning investors can find comparable large cap-focused ETFs with higher and lower fees. And to its credit, LWPE has accumulated more than $9.1 million in assets under management since its May debut. Not bad considering the market environment and that this ETF hasn't been on the receiving end of much press.

The allure of LWPE lies in the fact that the ETF is home to 448 stocks spread across nine different sectors. No stock receives an allocation of more than 3.06% and that honor goes to Chevron (NYSE: CVX). In fact, LWPE's top-10 holdings feature eight Dow components with Wells Fargo (NYSE: WFC) and Berkshire Hathaway (NYSE: BRK-A, BRK-B) the exceptions.

LWPE's sticking point comes in the form of a 26% allocation to financials and since the ETF is home to primarily large-caps, that means some of the more controversial names from an embattled sector are found within the ETF. American International Group (NYSE: AIG), Bank of America (NYSE: BAC) and Citigroup (NYSE: C) just to name a few.

The good news is five other sectors – energy, health care, producer durables, utilities, consumer discretionary and consumer staples – also receive double-digit weights. At the end of the day, LWPE is conservative enough that you could recommend the ETF to your grandfather and feel comfortable, but the ETF features enough higher beta stocks that it's not a complete bore, either.

More importantly, LWPE's chart is improving. In the past three months, LWPE has broken out of a reverse head and shoulders pattern to gain more than 8% and the ETF recently broke through some stiff resistance at $45. If volume starts to come into LWPE, it could challenge the $49-$50 area in the coming months.