When I wrote this morning about the very narrow healthcare sector ETFs I had no idea that the WSJ had a similar article (sub req'd), although the Journal did not mention the proposed Ferghana-Wellspring funds.
At the end of the article there was a quote from someone at Barclays who said the bank is exploring Eastern European and Indian ETF. Something along either of these lines would be more useful than a gastrointestinal ETF (no offense to my client who is in that field).
The article questioned whether PowerShares was offering funds that are too narrow. I was amused by a quote from a planner in Scottsdale who said that he stays away from them, the article implied this guy leaves the specialized ETFs for the bigger institutional investors.
While my initial reaction to the ETFs I wrote about this morning was negative, I will still check them out. It is possible that the names of the fund will be narrower than the actual holdings in the funds. For example, a company like Pfizer might reasonably have a foot print every sub ETF proposed by Ferghana-Wellspring. We may see bigger more familiar names showing up in several funds. I don't know but I am willing to wait and see.
Perhaps most interesting in this article was that Gus Sauter said that Vanguard is closer to the end than the beginning of its rollout of ETFs. This is interesting because they were slow to get in, may not have gained the traction they were looking for and seem to be discounting the future of ETFs.
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3 comments:
I think that some in the "trade" feel threatened by ETF's. They are too different from what they knew in the past. They are desparately looking for an easy way to describe them to their clients and can't find one. I have read some really stupid comments in the financial press about ETF's.
I expect that some smart marketing people will soon categorize them as Broad index, Narrow index, Sector, Enhanced performance etc., which will help. Simply expecting them to be understood as just another type of mutual fund isn't enough.
As far as what makes a good ETF versus a poor ETF - I am totally confident the market will sort that out.
OG
I don't see anything wrong with these funds. One of the advanages of narrow ETF's is that are very convenient for investors who want tight exposure to single sector. Some of Powershares's most popular ETF's are PHO/PBW which aggregate a basket of stocks that would be impractical for an individual investor to own collectively.
That was sort of point of UIT's, except that they became a scam perpetrated by unscrupulous brokers on gullable clients.
But there are plenty of UIT's with interesting investment theme's behind them.
Value Architects Shareholder Value Portfolio, Series 1 which invests in companies with strong free cash flow generation and lots of distributable cash on the balance sheet.
Global Water Global Water Equities Portfolio
Which aim's to have a more international holding of water related industries.
Another use of very tight ETF's is to produce portfolio's full of uncorrelated assets. For example you could combine the "FW Ophthalmology Index" with other non related ETF's such as IGE, PHO and ICF.
One would assume that that the Ophthalmology sector is not correlated with Water industries,Natural Resources stocks, or Real Estate.
Since people dislike going blind, I assume that there will be plenty of demand for Ophthalmologic lasers, occular lenses, and drugs to treat eye diseases. With the increase of diabetes (from obesity), more people will face the very real threat of blindness.
Market Participant
Access Pacific Coast 101 Growth Portfolio, Series 1
Is another UIT that would make for an interesting ETF. A California focused ETF. With a Gross State Product of $1.4 trillion, California is currently the largest state economy in the United States. It would be ranked the 5th largest economy in the world if it were an independent nation.
Far more impressive than Sweden if you think about it.
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