'Wretched Excess' in ETF Variety?!

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Roger Nusbaum submits: That is the assessment of the ETF market by Steven Goldberg in Kiplinger's.

There is some magnitude of ETFs that are useless in terms of offering nothing new (here the Morningstar ETFs come to mind), but 'wretched' is an extreme description and I think is incorrect. I try to think outside the lines in terms of trying to assess what new products offer, both the clear and obvious objective of the fund plus trying to seek out any secondary effects an ETF might offer.

An example of this would be the IPOX 100 (NYSEARCA:FPX) that owns IPOs. Yeah, the fund owns IPOs but as a secondary effect, the index has a long track record of being correlated to small cap growth, though it consistently outperforms small cap growth.

Asking why we need another healthcare sector ETF misses the point and discourages attempts at innovation. Clearly with new funds there will be hits and misses. I have conceded that many times here. In the article Mr. Goldberg advises only considering ETFs from iShares, StateStreet Global and Vanguard because they pioneered ETFs. Hmmm.

The thought process here is a bit baffling -- don't consider that another provider could have a better mousetrap? Don't explore new ways to diversify your portfolio?

He said one thing that I agree with and that I have mentioned before. People will use some of the narrower products incorrectly and hurt their portfolios.

This appears over and over and I can't imagine that ETFs will be immune from stupid people. But it is not Deutsche Bank's fault or an indictment of the product if someone blows themself up making a reckless bet on the commodity ETF.

The other day when the Scottish Re (NYSE:SCT) blew up I would bet there were accounts that owned nothing but that stock, on margin, that were totally wiped out. Does that mean you shouldn't buy stocks?

Clearly my writing is not going to put an end to articles like this, but I would encourage you to explore new products thoroughly. There is no harm in learning all about a fund and then deciding it is not for you.