Have ETFs Replaced Stock Picking? | ETF Trends

The advent of exchange traded funds (ETFs) and the advantages they offer over single-stock picking and actively managed mutual funds may be sending stock pickers the way of the dodo bird.

Serious stock pickers, whose investment strategies are based on the fundamentals of businesses, are faced with tough times in this market. CNBC reports that stocks get swept into various indexes by ETFs and are actively traded via algorithms and machines, which causes worry that these changes are leading to the death of stock-picking as we know it. [The Ever-Expanding ETF Universe.]

The surge in popularity of ETFs has made the markets that much more liquid, making it easier to buy and sell.

But don’t think the stock pickers and mutual fund managers of yore are going down without a fight. Some institutions are flying under the radar by entering smaller trades of hundreds or thousands of shares, instead of millions. [The Ups And Downs of Active Management.]

Are stock pickers and mutual funds really on the way out, though? No. Every investment type has its detractors and supporters, and stock picking and mutual funds are too popular to simply disappear.

ETFs, however, do have a real diversification advantage over stock picking for investors who aren’t willing to shoulder the risk of making a bad bet.

Tisha Guerrero contributed to this article.

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.