Exchange Traded Funds becoming more mainstream

by | Jun 16, 2008 | Asset Management, Stock Market Comments

In just the last month, assets in exchange traded funds increased $17 billion. Total assets in ETF’s now total over $600 billion, according to State Street Global Advisors of Boston.


I’ll tell you why this matters. In 1994, the first ETF’s were launched. The S&P500 clone, called “spiders” or SPDR was launched, followed by “diamonds” or DIA, which tracks the Dow Jones. For years, those were the only “exchange traded funds” around!

Today there are 683 ETF’s. Name a sector — large or small — and there is an exchange traded fund you can buy that mirrors it.

Again, so???

Look, there was a pretty significant report written years back (email me if you’d like the details) that explains that 80% of the returns you get in the stock market depend on whether the market is on offense or defense and whether you are in the right sector.

Eighty percent!

When I started over 20+ years ago in the business, the only way to buy the biotech sector was to try picking the right individual stocks — or buy a Franklin fund that specialized in biotech…with a 5% sales charge and some pretty massive management fees each year. No thanks!

So, if we can determine whether we’re on offense or defense and get in (and stick with) the right sectors, we’ve got 80%
of the problem tackled.

But the financial media still wants us to focus on individual stock stories. Yuck.

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