Is too much of a good thing (exchange traded funds) possible? ETFs have generated hundreds of billions of dollars and have been an easy alternative to mutual fund investing over the past few years. However, this ETF proliferation has prompted providers to launch numerous products so quickly that investors can’t keep track of all the different funds and the indexes they track, Steven Syre for The Boston Globe reports. In the first five months of this year, 150 new ETFs were created, which parallels the same number of ETFs born in the entire year of 2006 and three times the number in 2005. The bulk of the invested money remains in the broader, more diversified ETFs and those that offer efficient diversification. The narrower, specialized ETFs have yet to collect enough money to make their parent companies a profit, which is estimated at $50-$100 million.
Many feel that if the actively managed exchange traded fund (ETF) comes to fruition, there will be another boom in the industry. Regardless, we’ve alway taken a survival of the fittest approach to ETFs. If the new ETFs attract dollars and help investors … great. If they die on the vine because of little interest or little assets, so be it.
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.