{"id":511,"date":"2016-04-26T06:36:33","date_gmt":"2016-04-26T13:36:33","guid":{"rendered":"https:\/\/chaltenadvisors.com\/blog\/?p=511"},"modified":"2016-04-26T06:36:33","modified_gmt":"2016-04-26T13:36:33","slug":"etfs-where-the-fruitcakes-nutcases-and-lunatic-fringe-can-be-found","status":"publish","type":"post","link":"https:\/\/chaltenadvisors.ca\/blog\/etfs-where-the-fruitcakes-nutcases-and-lunatic-fringe-can-be-found\/","title":{"rendered":"ETFs: Where the “fruitcakes, nutcases and lunatic fringe” can be found"},"content":{"rendered":"

Exchange Traded Funds (ETFs) can<\/em> be a great tool for individual investors. Unfortunately we can’t say that they categorically are<\/em> good for investors because ETFs now come is so many varieties, shapes and sizes. \u00a0This is a minefield of risk for the do-it-yourself investor.<\/p>\n

ETFs can provide very low cost access to a broadly and globally diversified market portfolio that is appropriate for a long time horizon\u00a0–\u00a0good for investors. \u00a0The challenge is that with the proliferation of the number of different ETF products, investors have too many choices, many of which actually can be harmful. \u00a0According to the Canadian ETF association at the end of March 2016 there were 533 different ETFs listed in Canada – in the US there were\u00a01,659.<\/p>\n

You see the ETF is just a wrapper that can contain anything the ETF provider decides that is marketable. \u00a0That could mean a very diversified group of securities spanning a whole region of the world or a very narrow group of stocks focusing on a particular industry in a particular country. \u00a0How about the HealthShaers Dermatology and Wound Care ETF<\/em>? \u00a0It didn’t last long. \u00a0Or the Direxion Daily Agribusiness Bear 3x Shares<\/em> with the ticker “COWS” – fortunately sent out to pasture in 2012. \u00a0 These types of ETFs are designed for short term trading and often have high\u00a0fees\u00a0and clearly don’t provide diversification. \u00a0The website “Invest With An Edge” provides monthly stats<\/a> on ETFs that are launching and closing in the US. \u00a0In March, all 17 new ETF launches were different flavours of “smart-beta”, a catch all term for strategies trying to exploit systematic market anomalies using factors like “value” and “momentum” (see recent Chalten post – Are value stocks finally poised to outperform?<\/a>). \u00a0<\/em>No surprise given the current popularity of that investing trend.<\/p>\n

Even John Bogle, founder of Vanguard, which\u00a0provides some of the best ETFs in Canada, is wary of the product believing\u00a0most ETFs are created to tempt investors into short term trading and that many are just too risky. \u00a0With respect to leveraged ETFs, which can double or triple your bet using derivatives or inverse ETFs which are designed to bet against a particular theme or sector, Bogle is quoted by Yahoo Finance<\/a>\u00a0saying “this is where the “fruitcake, nutcases and lunatic fringe” can be found. There’s just no possibility or any realistic way that you’re going to win that bet.” \u00a0He does acknowledge that some broad market ETFs are good for investors.<\/p>\n

So what is an investor to do? \u00a0In Canada we’d suggest starting with well established players like Blackrock iShares and Vanguard. \u00a0Look for ETFs that provide broad market coverage for a very low cost. \u00a0For example Your Canadian market ETF shouldn’t have fees of higher than 5 basis points (that’s 1\/20th of 1%) and you should be able to assemble a globally diversified portfolio of ETFs for 25 basis points or less.<\/p>\n

While the latest edition is a couple of years old we also recommend the book Exchange Traded Funds for Canadians for Dummies<\/a> if you want to learn more. \u00a0There are newer and better products available in Canada since this edition of the book was published but it still provides a great foundation for do it yourself ETF investors.<\/p>\n","protected":false},"excerpt":{"rendered":"

Exchange Traded Funds (ETFs) can be a great tool for individual investors. Unfortunately we can’t say that they categorically are good for investors because ETFs now come is so many varieties, shapes and sizes. \u00a0This is a minefield of risk for the do-it-yourself investor. ETFs can provide very low cost access to a broadly and […]<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[17,11,7,3,14,12],"tags":[],"class_list":["post-511","post","type-post","status-publish","format-standard","hentry","category-costs","category-diversification","category-graham-bodel-posts","category-investment-books","category-investment-industry-issues","category-passive-vs-active-investing"],"_links":{"self":[{"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/posts\/511","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/comments?post=511"}],"version-history":[{"count":2,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/posts\/511\/revisions"}],"predecessor-version":[{"id":513,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/posts\/511\/revisions\/513"}],"wp:attachment":[{"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/media?parent=511"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/categories?post=511"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/tags?post=511"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}