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How Long is That ETF Going to be Around?
By JLP | May 9, 2007
Today’s Getting Going column by Jonathan Clements is titled Survival of the Fittest: Finding
An ETF With Staying Power. It’s an interesting read.
His point? There’s too many exchange-traded funds (ETFs as most people now call them). As the article states from Morningstar, there are:
39 ETFs focused on healthcare
32 ETFs focused on technology
35 ETFs focused on naturual resources
22 ETFs focused on the financial sector
Do we really need that many? If not, which ones will stay around for the long-term.
Jim Wiandt of IndexUniverse says that an ETF’s long-term existence isn’t secure until it reaches $200 million in assets. Why? Because any less than that and the fund may not be able to cover all their expenses. Clements goes on to suggest sticking with companies like Barclays (iShares) and Vanguard becuase of their reputations.
Personally, I would stick to basic low-cost ETFs focused on indexing and ignore the rest. Oh, and for the record, I checked and every ETF I follow in my portfolios meets the $200 million threshold (I’ll be updating the portfolios later today).
Topics: Exchange-Traded Funds, Getting Going, Investing, Jonathan Clements |
May 9th, 2007 at 10:26 am
I’m a true fan of Vanguard and I feel their ETFs will survive through it all.
May 9th, 2007 at 1:59 pm
JLP,
What would happen if an ETF just “died”? Does the money go away? I’m confused about how an ETF could “fail” if the underlying investments are still there. Looking forward to your answer!
NCN
May 9th, 2007 at 4:44 pm
I had an ETF close on me. The SPDR O-Strip (symbol OOO). When that happened the value of my shares was deposited in my account and I wasn’t charged a commission. I had only purchased it a few months prior, and I actually made a small profit.
May 9th, 2007 at 7:20 pm
Thanks for the heads-up on that $200 million threshold. I own iShares and agree that if you own well-reputed ETFs you should be fine, just stay away from listings from obscure firms
May 10th, 2007 at 1:18 am
The Vanguard equivalents to the index funds are my favorites.
May 10th, 2007 at 6:54 am
Investors should also consider trading volume when trying to decide among ETFs.
May 10th, 2007 at 2:25 pm
Six things I look at when evaluating Exchange Traded Funds (ETFs)
I made a comment to an article this morning on another blog, All Financial Matters, where the idea that an ETF might not be around long if capitalization doesn’t reach $200 million. Capitalization is only one of the factors I’d consider when evaluati…
May 11th, 2007 at 5:20 am
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