There was an interesting article in the New York Times about some of the narrower ETFs that have been listed as of late. The bias of the article, as I read it, was that almost all of the new ETFs are simple means to speculate and have no place in diversified portfolios.Gold? Forget it. Silver? No way. A country fund? Only use play money you can afford to lose. I am surprised the article didn't call for a firing squad for the double long and double short ETFs.
Clearly there is an element of striking while the iron is hot with some of the products but that does not mean they are useless for all time.
There is no doubt that people will use these funds to speculate and some of those speculators will get hit. It would have been nice to see some more exploration of how these can be used prudently.
All investment products have flaws and risks but they are not going to zero and since the tech crash investors are more aware of the dangers of betting too much on one area of the market.
More aware does not ensure success of course or prevent stupidity but it is a start to better investing. Biotech and Internet stocks are very volatile but some weight to each is appropriate in a diversified portfolio. If you put 20% into each one, yeah, you will either have heroic returns or blow yourself up. A lot more people realize this today. Volatility in and of itself is neither good nor bad. The measure should be how much volatility you expose your portfolio to.
If an investor has 97% of his portfolio in a diversified blend of mutual funds and puts the remaining 4% into the most volatile and most speculative ETF out there or heavens-to-Betsy a wildly unpredictable stock with a great story I don't think they are gambling the financial life away. They might be risking a lag but not ruin.
It seems like the initial reaction of MSM with anything new is to talk it down and then at some point in the future warm up to it a tad. The poster child for this might be Morningstar who pooh-poohed all ETFs a while back and now is selling ETF newsletters and ranking ETFs.
I get some (but not a lot) similar push back here when I try to explore something new. I think new and innovative should be explored in such a way to seek out the positives as well as the negatives. Only a balanced look can tell you whether to buy something or not. Also keep in mind that some of the products represent some serious evolution. Evolution implies, to me anyway, improvement.
7 comments:
Hi everybody - Hi Dr. Nick!
Roger, keep up that training for the rim to rim. I am a Prescott resident, also training for R tp R and maybe I'll see you on the trail in October.
I like the blog for a calmer perspective than most. No rash predictions. I like that
a new Prescottonian reader? or is it Prescott-ite(Taxi reference)?
We are hiking on October 6th. We are starting from the south side on the South Kaibab at what I hope will be 4am. We are targeting 2pm as a finsih time at the north rim.
I'll have green hiking poles (you might guess who I am from my picture too?)if you see me feel free to say hello.
Speaking of new stuff, those divdend etfs are shining. Shallower down turn in May and afterwards a better upturn. The ones I looked at:DVY,Pfm,PEY,PHJ,PID,VIG,FDL,SDY
When I go to morningstar or marketwatch, yield is NA. Roger, do these etfs have a yield or is it reflected in share price? Wisdomtree's choices are pretty interesting too. The trend looks like large cap value, with even better price action intl.
ETFconnect or the provider's web site is probably a better place to get yield info.
don't confuse the funds' recent success with the fact that bigger companies have been doing better as of late.
the funds are good holds, generally speaking, but if big cap goes down the dividend ETFs will feel it some magnitude
I'm not a technician expert, but the ratio of sdy dividend etf to large cap value suggests that the etf dividend exposure is superior. I used stocharts with sdy:iwd. Roger, if you were splicing and dicng with etfs for a total equity (moderate growth) portfolio, what % would you use and under what category for the sake of diversification. My shot: I would split the apriori allocation to large cap (?..25%) between large cap efs and dividend large cap etfs. If we are going into a mild recession, a company that can pay a dividend..is it fair to assume...will be perceived as having better price share support? Hence, dividend equity should have good representation?
you're not a technician yet it seems like you may have stayed at a holiday inn express?
joke joke joke
This is a great question. I will write a post to try to reply for Wed AM.
How long do you watch an new etf (like Wisdom tree offerings) before making purchase decisions and what do you use as criteria? Close correspondence to the index (Wisodom tree made their own???) and liquidity? Others? Thanks.
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