Saturday, November 21, 2009

ETFs - maybe

Back to ETFs, that is Exchange-Traded Funds in English.  Yahoo Finance has a nice write up about them here.

I won't repeat the points made in the Yahoo article but I would like to point out that traditional mutual funds and individual stocks also have some advantages.  Good management in either a mutual fund or in a single company can cause their fund or company to do better than an ETF.  I've heard that some ETFs may be coming out that are managed ETFs (rather than the index type that we mostly see now).  Whether that is a good thing or a bad thing must depend on the expertise of the manager. 

One of the things that I personally like about ETFs is that there are many with a very narrow focus.  I don't care for something like Standard & Poor's 500 Index Depository Receipts (SPY:AMEX) which tracks the S&P 500; going along with the crowd just isn't much fun.  I much prefer somthing like SPDR Gold Shares (GLD) which attempts to track the price of gold or iShares MSCI Japan Index (EWJ) that tracks the MSCI Japan stock market index.  That sort of focus is very difficult to find outside the ETF market.

One type of ETF that especially don't like (for me!) is the type that trys to double or even triple what the market does.  One such ETF is UltraShort S&P500 ProShares (SDS).  "The investment seeks daily investment results, before fees and expenses, which correspond to twice the inverse of the daily performance of the S&P 500 index." is a quote from the writeup for SDS in Yahoo.  That means that if the market goes down 10%; SDS trys to go up 20%.  Unfortunately it also means that if the market goes up 10%; SDS will try to go down 20%.  This sort of investment may work for investing professionals but for those of us who don't watch the markets minute-by-minute I think it is downright dangerous. 

Do I own ETFs?  Yes.  I've got a couple that focus on certain parts of the market.  Will I ever go 100% ETF; of course not but I may get up to 25%.  I always follow what I wanted to attribute to Ben Franklin but apparently I was wrong.

"Moderation in all things."  Terence c190-159BC in Andria(The Lady of Andros)

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