The "second generation" of exchange traded funds (ETFs) are hitting the market and many investors aren’t too confident in some of the newer products. Some industry insiders are even comparing this new wave of ETF capitalism to the late 1990’s mutual fund position during the technology boom. The main complaint is that ETFs are straying from all that they are praised for: low cost, transparency and broad diversification. The industry seems to be favoring too many niche products, reports David Hoffman of InvestmentNews.
One argument Bruce Bond, of PowerShares, has is that critics don’t understand what specialty ETFs are designed to accomplish. For instance, an expense ratio for a certain ETF may appear high in comparison with all ETFs, but the reality is that the fund may offer an inexpensive way to get exposure to a market they may not have had access to. The development of new structures and products shouldn’t be viewed as bad, simply different, and is part of the industry’s maturing process.
We’ll continue to see the number of ETFs expand and the shapes, sizes, smells and tastes will continue to be different. With the news and tools available to analyze ETFs, we shouldn’t be complaining about a little innovations.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. 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.