ETF Stuff

Tom Lydon echoed a sentiment of mine in an interview on CNBC the other day. The context was that although there are about 1000 ETFs now there are another 800 in registration and Tom said this will mean more work for investors. The way I usually say this is that ETFs make for easier access not easier work.

In yesterday's post I stumbled across what might be an interesting idea for constructing the foreign equity portion an ETF portfolio;

A combination of ABC High Dividend, Global X Andean ETF and a tech country fund would offer better diversification in my opinion than EFA or some similar fund.

To be clear that ABC fund is just a filing at this point and there is no tech-country fund (although ETFs for Taiwan and Israel could create the effect). In past posts I've gone on about the importance of avoiding certain parts of the world and favoring others. This proved out to be important and I believe this sort of thing will be important going forward. The above example would meaning learning enough about certain countries to decide to avoid them and then learning enough about other countries to chose to invest in them. I think ruling out EFA would require learning about four countries (Japan, UK, France and Germany) and the positive side of that example would require learning about at least eight countries.

Drawing conclusions along these lines requires work and selecting investments (funds or stocks) requires work as in time spent learning and then monitoring. This should be an obvious statement but I'm not sure in practice this is always what people do. There is a reason why so many people lag the market--actually there are multiple reasons but incorrect conclusions due to lack of time spent or other analytical mistakes id the context here. Another big issue is obviously behavioral mistakes.

The conference earlier this week focused on educating advisors about the product and while a lot of attention was paid to mechanics and the importance of various asset classes but I think more time collectively needs to be spent on various analytical processes, both initial and then monitoring. There is plenty of content on the internet to help with this including places like Seeking Alpha but the time needs to be spent.

As an example, in the panel I sat on there was an audience question about solar stock ETFs. Assuming the person is not purely a technician time needs to be spent looking under the hood drawing conclusions about the Chinese exposure, assessing how important (or not) the subsidies issues in Europe could be and probably a few other things to settle on before buying this space (I think this is a lousy theme, we all should have solar but there are way too many obstacles IMO). If you've spent a decent amount of time on this then I doubt you're saving too much time versus analyzing individual stocks.