User 5682

ETFs: Broadening or Perverting Index Investing?

I do not see the broadening of ETFs as a problem, mainly becasue I don't think of ETFs as having ever been passive. What's passive about the S&P 500? There's quite a bit of very active thought as to which stocks go in and which go out. It's a managed portfolio -- one that is very widely looked to as a benchmark, but a managed portfolio nonetheless. The only difference between SPY and the index is that in the case of the latter, it's just a paper portfolio.

I like the newer, borader, approach to indexing. Outfits like PowerSahres create their portfolios based on objective algorithm, rather than selection commitee debate. Why is that a perversion?

Either way, when you invest in an ETF, you invest, not in a company and not in the whim-skill of a portfolio manager (as in conventional open-end funds) but in a model. Bravo to the industry for offering us more models and for evolving models away from ciommittees toward disciplined algorithm. Not very nouvele ETF perfectly objective, but as long as the trend moves that way, I think the situation is improving for investors.