"Of Mutual Interest"-Penelope Wang, Senior Writer at "Money Magazine"
Tuesday, February 17, 2009PAUL KANGAS: In tonight's "Of Mutual Interest" segment, they have been around for a decade, and in the last five years have become an investment of choice. Now, with the economy in meltdown, exchange-traded funds or ETF's are changing. Joining us is Penelope Wang, senior writer at "Money" magazine. Penny, welcome back to the program.
PENELOPE WANG, SR. WRITER, MONEY MAGAZINE: Hi, Paul, it's good to be back.
KANGAS: You say that ETF's are changing. What's different and what's causing the change and how are they changing?
WANG: ETF's have had a bit of turmoil just as everyplace else, so even though a lot of money is still flowing in and new ETF's are being launched, at the same time a number of ETF's are closing and liquidating.
KANGAS: How big a number?
WANG: I've tracked about 80 ETF's that have closed since the beginning of last year. They include offerings from Northern Trust, for example, which closed 11 of its ETF's. Claymore has closed several and companies such as health shares and X shares have closed some of their offerings as well.
KANGAS: What's the main reason, the lousy market, or something else in general?
WANG: You can't underestimate the lousy market but the key reason is these particular ETF's simply didn't attract a lot of interest so not enough money flowed into them.
KANGAS: And they can be dangerous if you concentrate in one industry and that industry gets unpopular, you've got a whole series of stocks in the same industry and that could be worse than owning an individual, right?
WANG: That's true. Lousy returns didn't help, but many of these ETF's also tracked really tiny niches such as cancer cures or companies without ties to Sudan. So it's hard to see how even in a good market they would have attracted a lot of money.
KANGAS: So what guidelines would you recommend to investors right now?
WANG: I would advise the average small investor to stick with broad indexes that track a large swath of the stock market or bond market and also just stick with established companies with a longer record of supporting ETF's. Vanguard, State Street and Barclay's spring to mind, although there are others and if you want to bet on a niche or market trend, keep it to no more than 5 percent of your portfolio.
KANGAS: OK, five percent maximum. That's good advice indeed and let's hope that this market improves and I'm sure their popularity will make comeback, don't you?
WANG: I sure do.
KANGAS: Penny, thanks very much for being with us once again.
WANG: Thanks, Paul.
KANGAS: My guest, Penelope Wang, senior writer at "Money" magazine.
