How to Invest Your Money » ETFs

An investment vehicle by any other name?

Thanks, the financial industry. Thank you for muddying the waters. A man must admit when he has met his match, and I believe the boys with the yachts over on Wall Street and Bay Street have proven they will always be two steps ahead of the people trying to educate others on how to save a little of their nest egg for themselves.

No sooner does the term “ETF” start to enter broader, more mainstream lexicon than the wizards behind their desks decide that we need to take a term that is now marketable and apply it to almost any product out there in a bid to pump up the assets under management. Now I’m not really much for conspiracy theories, and I don’t believe that companies are creating new complicated ETFs solely to drive business to their mutual fund branches. I think that is exactly what’s going to happen though. Whether anyone is coordinating the effort or not, exchange-traded funds are no longer synonymous with low-cost investing and have instead become a somewhat vague tool that can be used in vastly different ways by different investors. There wouldn’t be anything wrong with that if everyone understood the fundamentals of investing and asset classes, but almost no one (in Canada at least) does, so there goes that solution.

Get your double-inverse Asian pea crop ETF here!

Everywhere you look now there is another “NEW ETF OFFERING”. Almost any conceivable market for any asset class from around the world now has an index of some kind created for it and an associated ETF. Now that by itself wouldn’t be too bad – I mean I understand that there is some investor demand for those sorts of products. They do make it much harder to break things down to people when you’re trying to explain how ETFs = low cost investing, but I could probably live with that. I might even be able to wrap my head around all of these double-leveraged and inverse-ETFs because even though the added layers of financing add to the MER fee (which begins to defeat the purpose of low-cost investing), but again, I guess I understand that companies are only responding to what certain niche parts of the market want.

A mutual fund by any other name still smells just as bad

What really gets me is the explosion of “actively managed ETFs” out there now. Here I go and write an ebook about low-cost investing through ETFs, and these mutual fund guys who think they can out-pick the market (despite all academic evidence to the contrary) come and crash the party. If you’re a consumer that is confused about seeing an ETF with a relatively high MER (although still lower than almost any comparable mutual fund) when you thought you were getting into exchange-traded funds to get away from these guys reaching into your pocket all of the time, then just know you’re not alone. Any investment product that is actively managed is going to have the same problems that mutual funds currently have (just surf the personal finance blogosphere for more on that little debate).

Anytime you can tie a wrestling metaphor to personal finance you have to do that

Financial wizards, I understand you guys are built to make money. It’s what you were put on Earth to do. But you couldn’t keep it simple for us this one time? Nope. Instead, we now get newspaper columns from people making huge amounts of money off of the financial industry making derogatory quotes about ETFs that are technically correct due to the deviating of what ETFs were meant for in the first place. They will talk about how “some ETFs” now have MERs that are almost as high as mutual funds, and how this or that particular ETF doesn’t track its index very well. See team, the financial industry doesn’t have to play by the “burden of proof” rules, because the table is already stacked in their favour. All they have to do is make sure that the message getting out to consumers sounds very complicated and somewhat vague or contradictory, and they win by default. It’s like the strategy the bad-guy wrestling champions used to use when I was a kid – they didn’t need to win the match because in the case of a disqualification they got to keep the belt. The mutual fund industry and the levels of management it supports will be hanging on to their belt for the foreseeable future (but I bet their entrance music is super boring).


  1. Sean

    Some brokers in Canada are now offering free trades on any ETF’s. Granted the savings of like $9 per trade isn’t going to get you in that yacht any sooner. Have you considered other investment vehicles?

    What kind of time-frame are you investing on?

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