ETF Scary Monsters & Super Freaks

October 31, 2014

Teenagers In Hoodies

There’s one rule at our annual Halloween gathering. No costume = no candy. Yet year after year, groups of goofy teenagers will reluctantly slink up to the porch in jeans and hoodies and mumble “trick or treat” hoping to get a handout.

No dice. You want the candy? You can at least go get a Nixon mask and try your “I am not a crook” impression.

The ETF world has its share of funds that really shouldn’t get any candy from most investors as well.

Loyal readers will know what a huge fan I am of volatility funds like the iPath S&P 500 VIX Short-Term Futures ETN (VXX | A-47), and those funds have no real place in most portfolios. Ditto most leveraged and inverse products.

Watching The Parade

For the most part, the hometown costumer parade is full of well-meaning kids who cobble together something fun. The ETF space is the same—the vast majority of ETFs do what they say they’re going to do, and they do it well. But there’s good and bad everywhere, and it pays to keep an eye out for the scary monsters.

At the time this article was written, the author held no positions in the securities mentioned. You can reach Dave Nadig at [email protected], or on Twitter @DaveNadig.

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