Joining the Chorus Against the ETF Explosion

Now the explosion in exchange-traded funds (ETFs) has gone too far. I held off with this charge while others like John Bogle bemoaned the arrival of sector ETFs, “intelligent ETFs,” and other departures from broad-market ETFs. But as of this day, I’m joining Bogle and other detractors of the ETF expansion.

According to IndexUniverse.com, Harry Dent Jr. has launched an actively managed ETF called the AdvisorShares Dent Tactical ETF. It began trading Sept. 16 under the symbol DENT in the U.S.. Mr. Dent, as you may recall, is the serial soothsayer and author who uses demographic trends and other variables to predict economic booms and depressions – to varied success.

“It’s not going to be limited in any way how much its managers can trade. And they won’t follow any index,” an executive associated with the ETF told IndexUniverse.com. The management expense ratio (MER) is close to 1.5%, about what mutual funds charge in the U.S. Dent’s ETF functions like an ETF of ETFs, i.e. Dent and co-managers will be trading ETFs.

The executive adds this about the portfolio management team:

They’re not fundamental and they’re not technical. Dent uses economic data such as spending habits and future earnings potential to identify the most appealing companies given specific demographic trends his team has identified.

Actively managed? No restrictions on trading? No benchmark? MER like a mutual fund? Managed by a person with a forecasting track record suggestive of a random toss of the die? Need we say more?

Comments

[Hend085:]

seems far more like an open ended mutual fund rather than an ETF.
the lack of transparency(no index) and high management fees go against the reasons for ETF's recent success

Sep 21 05:51 AM

[SeeTheLight:]

No one forces people to buy poor ETFs. If the ETF is not valuable to investors it will become illiquid and likely be redeemed and shut down. This argues that (retail) investors should have less selection in ETFs and/or are incapable of making informed decisions and need to be protected from their own naivety. But if you believe the latter then perhaps we have to remove the ability for them to invest at all since they can make equally bad decisions by buying penny stocks, bankrupt company stocks and stock options.

Presumably, they could previously buy Mr. Dent's (or similarly created) mutual funds albeit through an intermediary, so what if they can now buy it ETF form. We had literally thousands of crummy mutual funds for years (which often had early redemption fees) and no one complained about that, how is having more ETFs as an alternative (a more liquid one I might add) a bad thing? No question, the example ETF provided above sounds like a poor investment, but to that I say caveat emptor.

Good Luck all.

Sep 21 07:10 AM

[Brad R.:]

I would have to agree with SeeTheLight, just because it is being offered does not mean that is okay to invest in. A multitude of investors are still investing in these leveraged and inverse ETF Funds that tend to stray from their benchmark after several days/one week. I know that there are sides for and against but that is such with everything in this life. You have to pick and choose what you invest in. If the shareholders want to pay these high fees then let them and waste their money, there are cheaper alternatives with less risk.

Sep 21 09:34 AM