I've just returned from the annual conference on Exchange Traded Funds in Florida, often called ETFs. They have several advantages over mutual funds. For example, they can be bought or sold anytime during the day, not just at the close like mutual funds. Since their investment objective is to match some index, like the S&P 500, they don't need a lot of high-paid portfolio managers. As a result, their expense loads to investors are often much less. The primary reason I like to use ETFs is the targeted exposure I can give investors. An example would be GDX, which is limited only to the miners of gold and is diversified among them. (I don't have to make a bet on one gold miner being better or more honest than other gold miners.)
Nonetheless, I was concerned during last May's "Flash Crash," when it appeared that ETFs were more affected than regular stocks or mutual funds. I have now learned this was due to the problem of being matched to an index. For example, if 1.4% of your index is XYZ Company and that company got mired in a mechanical crash, you may or may not be able to balance the ETF to match the index. Bottom Line: There is no reason to avoid ETFs.
The conference was excellent with lots of optimism about the economy, about the stock markets, and about the future of ETFs. I'm glad I went . . . but I missed my blog.
