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Weekend reading: ETFs are playing to the active crowd

Good reads from around the Web.

I don’t know about you, but the new iShares Exponential Technologies ETF has a sort of end-of-days feel to it to me.

Are investors really clamouring to put money into a basket of stocks exposed to:

“…robotics, artificial intelligence, machine learning, nanotechnology, bioinformatics, sensor technology, financial services innovation, energy and environmental systems, neurosciences and of course, medical sciences…”


The ETF amassed $600m assets in just a couple of days – more than enough to propel it clear of the ETF dead pool for now.

That seems a little frenzied, certainly. But according to ETF.com [1] nearly all of the initial money came from the firm of the ETF’s promoter, Ric Edelman.

And Edelman has only invested a relatively small 4% of Assets Under Management into his brainchild.

So perhaps not quite DotCom 2.0… yet.

Not your father’s ETF investing

It’s worth remembering all these bespoke ETFs when contemplating the growing popularity of exchange traded funds, as illustrated in this graph from MorningStar [2]:

Click to see ETF AUM growth in widescreen! [3]

Click to see ETF AUM growth in widescreen!

Source: MorningStar

Conventional index funds and ETFs are both taking market share, sure.

But the explosion of ETFs is particularly marked in the sector-based category.

And this demand comes from active investors who are holding baskets like the Exponential Technologies ETF in place of shares in individual companies.

Or perhaps that should be “trading” rather than holding – because ETFs are also widely employed by hedge funds and the like to dial their exposure up and down on a dime.

It’s all why Vanguard’s Jack Bogle is skeptical about ETFs, of course. Bogle believes they are a gateway drug into active investing.

But most of Wall Street and The City isn’t concerned about what’s right for investors – more about what they can sell investors.

Not for nothing was posterchild Goldman Sachs described [4] as:

“a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”

Indeed, Goldman created the new Exponential Technology ETF, along with iShares owner BlackRock.

And why shouldn’t it? Financial engineering is part of Goldman Sachs’ job.

But it’s our job to decide the best way for us to invest our own money – which for the majority will be to ignore the whole hullabaloo and invest passively [5] instead.

Big bucks for ETF wizards

That said… if you can’t beat them, maybe you could join them?

No, no, I don’t mean becoming a silly active investor [6] chasing rainbows. We know most attempts at active investing fail to beat the market.

I mean getting a job dreaming up your own weird and wacky ETFs.

There’s a “battle for ETF brains” going on, reports the FT [7] [Search result]:

Mutual fund shops are on the hunt for people with a track record of building products and relationships in the exchange traded fund market and are likely paying big bucks for that know-how.


I’ve actually got my own idea for an ETF. It would be a sort of world equity index [8] tracker fund, that simply holds as many stock market-listed companies from across the globe as possible while also keeping costs low.

Do you think it will catch on [9]?

From the blogs

Making good use of the things that we find…

Passive investing

Active investing

Other articles

Product of the week: Parents can switch their kids out of old-fashioned Child Trust Funds and into more flexible Junior Isas from Tuesday. The Guardian [26] surveys the options.

Mainstream media money

Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber of that site.1 [27]

Passive investing

Active investing

Other stuff worth reading

Book of the week: Carl Richards – that bloke who draws those neat cartoons about money and investing instead of waffling on for 1,000 words like I do – has a new book out. The One-Page Financial Plan [40] was aimed at a US audience, but early reviewers say there’s plenty for UK readers, too. Not surprising – the genius of Richards’ work is that some of it could be understood by a precocious caveman.

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  1. Note some FT articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. [ [45]]