ETF Innovation: Positive or Confusing?

The world of exchange traded funds is nothing if not a hotbed of innovation. Rarely a week goes by without the announcement of a new type of ETF. We have noted this trend for some time with a degree of trepidation. Our wariness stems from the fact that the increasing complexity of ETFs could very well turn off individual investors seeking out a simple, indexed, cheap alternative to traditional mutual funds or broker managed accounts.

In light of this we found a few articles on ETF innovation that might be of interest:

● A new entrant, WisdomTree Investments, has filed with the SEC a series of new ETF applications. IndexUniverse.com is somewhat disappointed in the new funds given the amount of secrecy and hype that has lead up to this point. While the timing may be apt for dividend related funds the sector is already well covered. It will be interesting to see if their international offerings become popular.

● Timothy Middleton at MSN Money weighs the pros and cons of the “intelligent indexing” approach common at ETF provider Powershares Capital Management. Given the performance to date, Middleton views the increased turnover and expenses as a worthwhile trade-off.

● Gregg Greenberg at TheStreet.com has a discussion with two lawyers who are involved in the ETF registration process. They discuss the issues involved in getting innovative funds approved by the SEC.