ETFs: Can't See the Wood for the Trees

A disproportionately large share of negative ink written on ETFs is not reflective of the broader experience of investing in these products

Ben Johnson 18 November, 2011 | 10:57AM
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The positive attributes of exchange-traded products are straightforward: they are low-cost, liquid, and transparent.

A hand-scribbled list of these selling points would occupy at most one half of the back of an average-sized business card. Meanwhile, negative headlines about ETPs continue to take up a vast amount of space in the popular and financial press. But is this disproportionately-large share of negative ink reflective of the broader experience of investing in ETPs? I think not.

I am not trying to trivialise the importance of understanding the structural risks associated with ETPs as well as those present in the broader ETP ecosystem (the exchanges, post-trade clearing and settlement). I continue to believe that education is paramount and that it will be a critical precursor to more widespread adoption of these products. After all, the golden rule of investing in ETPs--and any investment vehicle for that matter--is to know what you own.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Ben Johnson

Ben Johnson  is director of passive funds research at Morningstar.