ETFs: A General Lack of Knowledge

by | Feb 19, 2014 | Asset Management

In this week’s Mullooly Asset Management podcast Tom and Brendan discuss ETFs. ETFs (exchange traded funds) are something we’ve discussed several times in our weekly podcast. This week’s focuses on why more advisors and brokers aren’t offering ETFs as investment options to their clients. With over 1500 ETFs in the United States alone, a shortage of choices can’t be the reason.

A recent article found on Investment News ( shared some alarming statistics about ETFs gathered by S&P Capital IQ. After analyzing these stats it’s pretty apparent that many brokers and advisors don’t fully comprehend exchange traded funds. The Investment News article makes the case that S&P Capital IQ’s findings suggest, “one reason advisers might be shying away from ETFs is lack of knowledge”.

Just to give you a taste of the statistics this survey uncovered, take in the fact that just 13% of advisors surveyed said that, “an ETFs specific securities holdings were crucial” to choosing which fund to invest in. That seems slightly illogical to us, but we’ll let you be the judge of that. When you buy an ETF, you’re purchasing a basket of stocks. We think that the specific security holdings within an ETF and how they are selected for inclusion in the basket are both very important factors to consider.

Conversely, 56% of respondents considered the expense ratio to be the most important factor when choosing ETFs. Tom shares his opinion on this train of thought in the podcast.

It seems like a lot of advisors and brokers are getting caught up analyzing the wrong type of data when it comes to ETFs. This suggests that many advisors and brokers have an insufficient understanding of these investment tools, and we think that’s disappointing.

Tune in to this week’s Mullooly Asset Management podcast to hear more about the S&P Capital IQ survey on ETFs and our analysis of their findings.