ETFs: my love/hate relationship with Exchange Traded Funds

ETFs, aka Exchange Traded Funds, track a commodity or basket of assets much like an index fund, but trade like stocks. Though useful, might ETFs be a bit poisonous for markets?

Shannon Stapleton / Reuters / File
ETF Securities brought solid bars of gold, silver, and platinum to the floor of the New York Stock Exchange Nov. 9, to celebrate the recent listing of the ETFS Physical Precious Metals Basket Shares. (Photo composite: bars not to scale.)

I think Tadas Viskanta's reaction to this week's ETF-damning Kauffman Report got it right. He basically says net of all negatives, the product has been a boon to the investment world. I feel the same way. I recognize how damaging they've become to orderly markets, but I'm using them to do things I could never do before they came along.

I dropped a beast of a blog post for this morning in which my bittersweet thoughts on the topic are fleshed out. Enjoy:

To paraphrase Joan Jett, as a financial advisor I hate myself for loving ETFs. It’s complicated.

My love/hate relationship with Exchange Traded Funds stems from their simultaneous ability to both help me with my practice and destroy the market as we know it. Can’t live with ‘em, can’t service my clients without ‘em.

This week the Kauffman Foundation set off a firestorm with a study blaming ETFs for everything from flash crashes to a lack of new IPOs to restless leg syndrome. And while ETFs are incredible in terms of efficiency and low internal costs, there are inefficiencies and external costs to these products that even a fan like myself must acknowledge.

Read the rest:

Sleeping with the Enemy (CNBC)

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