Market Pulse: This is getting ridiculous
October 29, 2014
The growth of Exchange-Traded Funds (ETFs) has been nothing short of phenomenal, and there now 1650 ETFs. Financial companies that introduced ETFs early have done very well in gathering assets. Latecomers are finding it more difficult. Specialty ETFs are being introduced and some are ridiculous.
For example: The best example that the ETF space is saturated is LocalShares Nashville ETF (NASH), which has filed to offer a fund that tracks publicly traded companies headquartered in Nashville. Really? What's next? LocalShares Knoxville? Dubuque?
A month ago, I laughed when I heard about the USCF Stock Split Index Fund (TOFR). This fund invests in stocks that have had a split. Unfortunately, investors are no better or worse off when a stock splits.
For example, owning 10 shares of a $100 stock is a $1000 investment. If it splits 2:1 then the investor own 20 shares of a $50 stock, which is still a $1000 investment.
AdvisorShares launched Garman Gold ETFs, which allow investors to buy gold in the British Pound, the Yen, or the Euro. A profile of investors who want to buy gold in anything but dollars would make a great reality show. Its expense ratio of 0.65 percent plus large bid-to-ask spreads makes these ETFs very expensive.
The Elements Linked to Spectrum Large Cap U.S. Momentum ETN (EEH), which is designed to track an index of high-growth stocks. Unfortunately, it sometimes trades at a huge and unpredictable premium to its index. For example, in September it briefly jumped 208 percent, and then plunged 68 percent in two days. Who wants to deal with that?
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Many new ETFs are coming to the market. At the same time other ETFs are closing down due to lack of interest. The ETF space is crowded and it is getting harder to successfully launch an ETF. I prefer to own the larger ETFs. They offer the best liquidity.
David Vomund is an Incline Village-based fee-only money manager. Information is found at http://www.ETFportfolios.net or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.
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