Investor skepticism relating to exchange traded funds (ETFs), and more specifically the risks related to the potential for some ETFs to contribute to, or perhaps be one of the causes of, a bubble in equity markets, is a discussion which is ongoing among investment professionals and market participants today.
The fight for market share between active managers, mutual funds, and the fee-generating investing sector and the low-fee, easy to trade ETF sector has largely pitted the two groups against each other, resulting in a situation where money managers are often having to come up with reasons for investors to steer clear of ETFs in today’s market.
While it is true that most ETFs are market-weighted, meaning an investor in an index fund typically has a level of diversification that may be less than initially expected, it is also true that having a product which tracks an overall index relatively well with fees a fraction of those charged by money managers is an excellent option for investors looking for no-hassle investing with a greater opportunity for growth, given reduced fees which can amount to 3% or more of a fund, depending on the management expense ratio (MER) of the actively managed fund an investor is currently a part of.
Investors considering ETFs as a core holding need to look past the rhetoric and take a deeper look at the holdings of the various ETFs one is considering, to pick a fund (or two or three) that matches the index, sector, or equity-specific risk-reward relationship sought by the investor.
Invest wisely, my friends.