August 23, 2007

There's been a whole lot of press attention on those big bad ETFs that are going to get you. When did we lose sight of the fact that just about ALL ETFs are better than just about ALL actively managed mutual funds?

And we really don't need to confine it to just ETFs...there are still a lot of great mutual funds out there. I was going through my mom's investment portfolio in recent days and looking through the bulk of her old portfolio (which is sensibly indexed) and some old legacy funds (which are - aak - loaded, overpriced and underdiversified).

And you know what I realized? Good lord, there are a lot of GOOD funds out there. In my mother's case, many of her mutual funds are Vanguard. And I looked at the performance, the expense ratios (and even the added-on penalty fees for early withdrawal, etc.) and I said, "Man, there are a lot of really good funds here." Basically, I look at a portfolio like that, or my own and I say, well the market may go down, but I feel really good about where I'm at.

I'm confident about the allocation, that I'm diversified enough and in the right places, and that I've kept fees to a minimum and tax efficiency at an optimum level. I look at this and realize that the equivalent was IMPOSSIBLE 20 years ago...heck 5 years ago for my own portfolio.

So contratulations ETF and index industry...you are kicking some competitive butt, and doing right by investors. I'm not saying we don't look at the industry's flaws, but let's keep some perspective.  I mean the funds that people dog on most - the thinly sliced or "active" funds, the backtested funds, etc.  Well they're delivering MORE for LESS.  The universe to compare them to is the active universe.  And some of the returns seem to warrant commendation.

I just think it's nuts that, for example, the industry is at fisticuffs with Rob Arnott.  And he's onto ideas that are definitely interesting.  And he's doing this at prices that are not crazy.  Same, really, goes with WisdomTree...going in hard on relatively low margins.  HOORAY.  I mean, when the trends have all been toward um, margin expansion and Hedge Funds, we've actually got people working on alpha for 70 bps instead of 2 and 20%.

OK - I got that out of my system.  So now you're going to have to wait for those "5 ETFs I WOULD buy."  Good lord, is Wiandt going ACTIVE?  I wouldn't hold my breath if I were you.  I said they were better.  I still have not admitted publicly to the CONCEPT of alpha existing...

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