That is the assessment of the ETF market by Steven Goldberg in Kiplinger's.
There is some magnitude of ETFs that are useless in terms of offering nothing new, here the Morningstar ETFs come to mind, but wretched is an extreme description and I think is incorrect. I try to think outside the lines in terms of trying to assess what new products offer, both the clear and obvious objective of the fund plus trying to seek out any secondary effects an ETF might offer. An example of this would be the IPOX 100 (FPX) that owns IPOs. Yeah the fund owns IPOs but as a secondary effect, the index has a long track record of being correlated to small cap growth but it consistently outperforms small cap growth.
Asking why we need another healthcare sector ETF misses the point and discourages attempts at innovation. Clearly with new funds there will be hits an misses, I have conceded that many times here. In the article Mr. Goldberg advises only considering ETFs from iShares, StateStreet Global and Vanguard because they pioneered ETFs. Hmmm.
The thought process here is a bit baffling--don't consider that another provider could have a better mousetrap? Don't explore new ways to diversify your portfolio?
He said one thing that I agree with and that I have mentioned before. People will use some of the narrower products incorrectly and hurt their portfolios. This repeats over and over and I can't imagine that ETFs will be immune from stupid people. But it is not Deutsche Bank's fault or an indictment of the product if someone blows them self up making a reckless bet on the commodity ETF.
The other day when the Scottish Re (SCT) blew up I would bet there were accounts that owned nothing but that stock, on margin, that were totally wiped out. Does that mean you shouldn't buy stocks?
Clearly this blog is not going to put an end to articles like this but I would encourage you to explore new products thoroughly. There is no harm in learning all about a fund and then deciding it is not for you.
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4 comments:
Didn't read the article, but I suppose this another one against etf's???? I say follow the money and a TON of it is going to etfs. Huge forward momentum. By both ma and pa's and professinals. Mutual fund transpency stinks and I suspect that there will be more revelations of abuse in this indusdtry. Am I too cynical to think that the boys are circling the wagons? Unfortunately, etf mgmt are the same humans that will reach into your pocket if they can get away with it. Roger. Stay on the side of us little guys. We need you. All sarcasm aside, I would accept a small tax on all my equities to fight white collar crime. Did I go off on a tangent. It's the coffee talking. I really don't have any hateful feelings towards those bums setting up bogus offshore accounts to offset gains with fraudulant losses.
Liberace, when asked if he felt bad when people critcized him, said:
"Yes, I cry all the way to the bank."
I have a sneaky suspicion the ETF Sponsors feel the same way.
Are all "Financial Journalists" former English majors, who have never heard of Adam Smith?
OG
in stitches
You guys are getting too uptight in here, about these etfs. The way most mutual fund managers mimic the S&P, with a tad here and there over/undrweight....there are a bunch of closet etfs out there already.
Etfs are great, because they empower the little guy to enable him to allocate.
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