ETF Overkill May Hurt Their Appeal to Investors

Physician's Money Digest, December 2006, Volume 13, Issue 12

Wall Street Journal

While many physician-investors haveachieved financial success with exchange-tradedfunds (ETFs), the flood of new ETFsin recent years has some experts speculatingthat the public is getting confused bythe myriad of specialized ETFs in the multitudeof market sectors. According to the, there are currentlyaround 280 ETFs listed on domesticexchanges—more than 180 on theAmerican Stock Exchange and over 100 onthe New York Stock Exchange. Investorswere initially attracted to ETFs when theydebuted a decade ago because of their lowfees and low turnover, as well as the waythey track the benchmarks of the top markets,such as the Dow and the S&P 500.Total assets in US-listed ETFs have surgedfrom $80 billion in 2001 to $324.7 billionin May of this year. So far in 2006, therehave been over 70 new ETFs listed. Butmany of these new funds are based oncomplex benchmarks that try to identifyoutperforming stocks and sectors thathave been difficult for individual investorsto access in the past. Because of this, someexperts argue that these ETFs are moreconfusing to investors and have a higherturnover and fees, which is the very oppositeof why ETFs became so popular in thefirst place. Other experts say that ETFs areexperiencing overload, but the industry issimply in a rapid development, much likemutual funds in the 1990s.