An ETF of ETFs – How Does It Work?
August 9th 2007 at 1:00am by Tom Lydon
The concept of an exchange traded fund (ETF) of exchange traded funds is to diversify by spreading out money with equities, bonds, commodities, etc. with just one investment. Convenient, yes; simple, not quite. Funds of funds allow the buyers to purchase and track only one security for their portfolio. These types of funds typically rebalance themselves, taking care of this chore for investors automatically. A fund of funds can create a genuine, balanced portfolio with the addition of fixed income and a few other securities, reports Will McClatchy for ETFZone. These ETFs launched at the end of June in Canada and are not yet available in the U.S.
Sound too good to be true? Well, the main drawbacks are that the asset allocation is out of investors’ hands, and the fee structure is costly. Management fees are known to be around 0.70% per year, and then there are brokers’ fees. Large allocations to a certain sector, despite what the fund claims by title is questionable, so research is imperative. Do typical do-it-yourself investors need all of the aforementioned service? Weigh cost with strategy, and then decide if it’s right for your portfolio. The
ETFs of ETFs include the Claymore Global Balanced Income ETF (CBD) and the Claymore Global Balanced Growth ETF (CBN). Funds follow rule-based indexes of indexes from Sabrient using fundamental financial analysis, so they’re not actively managed.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.