The Basics on Exchange-Traded Funds
The Great ETF Debate:
Pros and Cons of ETF Growth
Dozens of new exchange-traded funds (ETFs) are coming on the market each month, making it increasingly challenging to sort through and choose from among them.
Mutual fund legend John Bogle, in a recent Wall Street Journal editorial, sounded a warning against ETF proliferation. Bogle - the Vanguard founder who developed the first index mutual fund - called ETFs a “mutant” of indexing. He said he thinks short-term speculation, rather than cost-effective long term investing, is driving the surge of new, ever-narrower ETFs.
Many new ETFs are in fact close duplicates of existing ETFs, or highly esoteric and narrowly focused ‘concept ETFs’ that may ultimately fail to attract sufficient assets to thrive. Some duplication is also driven by competing ETF sponsors battling for market share and wanting to have a full line of offerings.
The silver lining for investors, however, is that the many new ETFs - especially those with lower costs than comparable index mutual funds - do increase the available options for assembling a portfolio tailored to a specific investment strategy.
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