Thursday, April 19, 2007

ETFs Stray

The WSJ has an article this morning about ETFs which have diverged from the performance of the benchmarks they were designed to match. The funds cited most frequently are the funds that are designed to match the price of oil. A number of these funds have diverged widely from the actual price of oil. The technical reasons why this is happening is not important to us since we don't use these ETFs, but the problem could affect investors who are making narrow bets using ETFs. We use mostly broadbased ETFs which have not experienced these problems. Frankly, I think the ETF market is getting a little out of hand. The number of funds has exploded as sponsors try to slice and dice the market into ever smaller segments. The problem is that there is not suffcient trading volume to maintain the narrow spread between market price and NAV. Stick to the broad based ETFs and you shouldn't have any problems.

No comments: