Investorial

Did you know that ETFs have been around since 1993? The Wall Street Journal had done a story last year on ETFs that caught my eye. I was looking to learn more about ETFs, and the WSJ article (where I got the chart in this article) gave a good historical summary of ETFs for the un-initiated. I’m not sure if the 13 years is supposed to be too long or too short. But the recent explosion of ETFs has prompted me to revisit the story again.

When it comes to watching over the financial industry, Canadian financial columnist Rob Carrick echos my sentiments exactly when he say “The cuter the investment industry gets in developing a product, the warier you should be about buying it.“. I’ve written before about ETFs becoming so “cute” that they’re barely recognizable! Are ETFs destined to suffer the same fate as did mutual funds? (more…)

Ross Healy is the chariman and CEO of Strategic Analysis Corporation, an investment advisory firm. Though I feel at times, that Ross’s comments are too politically correct, too on the fence, I still recognize that Ross is very much respected in the Canadian investment scene. Ross is best known for his bearish call on Nortel when it was trading over $100 in 2000. As of June 2006, Strategic Analysis Corporation’s model portfolio has outperformed the S&P/TSX Total Return index to a tune of 20.9% to 11.7% since its 1993 inception.

If you haven’t yet, you should start by reading Deep Value Face-Off - Part 1 first! (more…)

Doesn’t it warm your heart seeing those kids grow up right in front of your eyes? I remember when mutual funds were plain-jane investment vehicles. Then came sector/industry funds, followed by asset-allocation funds, fund-of-funds, life-cycle funds. Each evolution becoming more exotic than the last incarnation — not as a way to provide better returns for investor, but as marketing gimmicks to attract investor capital.

ETFs are now heading down the same path. Arriving first on the scene were boring old index ETFs, then came currency ETFs, fixed income ETFs, and precious metal ETFs. The latest version from ProFunds has stirred some talk around the financial blogosophere (found here, here and here) and even prompted a MarketWatch article; where I first read about leveraged ETFs. I have strong feelings about ETF’s new brother, and also the way they are marketing it. Care to hear my opinion? (more…)

I’ve been participating in a comment thread with Canadian Capitalist about alternative investments. I mentioned an aversion towards ETFs because to what I understand, ETF’s are sort of like derivatives? Though I was hard pressed to find such a definition online.

Investopedia defines Exchange Traded Funds (ETFs) as:

A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange, thus experiencing price changes throughout the day as it is bought and sold.

Because it trades like a stock whose price fluctuates daily, an ETF does not have its net asset value (NAV) calculated every day like a mutual fund does.

Great, now we know what the public knows. Here’s what I don’t know. My question is “What’s the asset backing the ETF’s?” Are there underlying stock? And how can there be such frequent trading and movement of money in and out without triggering (more…)