In My Dreams

March 13, 2006

Let’s imagine that I am in charge of the ETF universe, and that I get to launch whatever funds I want. Here's what I'd do...

Let's play a game. Let's imagine that I am in charge of the exchange-traded fund (ETF) universe, and that I get to launch whatever funds I want.  Instead of just writing about ETFs, I actually get to invent them and put them on the market.  Ahh, the power, the glory…

To make this fun, I'm going to let everyone in on the game: If there's an ETF you'd like to see on the market, email me at [email protected].  I'll pick the best submissions and post a follow-up article next month. And who knows?  The ETF developers might get an idea or two.

First, two disclaimers:

1)     This list does not include funds that are currently in registration, although I am very excited to see leveraged ETFs, silver ETFs and oil ETFs (among others) hit the market;

2)     The list includes a lot of "quasi-active" funds, not because I love these funds, but because the market for traditional domestic index funds is relatively saturated.

Without further ado, my funds, by category:

International Funds

India: ETFs offer investors access to some of the most exciting markets in the world: China, Taiwan, Korea, Mexico, Brazil, etc.  Where's India?  Having recently returned from a trip there, I can tell you that there's a buzz in the cities that's palpable: the stock market is booming; billboards advertise IPOs and mutual funds; banks are popping up all over the place.    Of course, the country has huge issues with wealth disparity, caste-ism, incredible poverty, and enormous infrastructure problems.  Frankly, I am not sure it can overcome those challenges. But India was the second-fastest growing economy (after China) last year, and it is one of the few developing economies based on innovation, rather than the exploitation of natural resources. 

The need for an ETF is especially important here, as the cheapest India mutual fund available to U.S. investors charges 2 percent per year in expenses.

Russia:  I am much less convinced by Russia than I am by India, but there are a lot of people smarter than me who think that Russia's recent economic boom is going to continue.  I say, let them have an ETF.  The current group of Russia mutual funds charge outrageous expenses.

BRIC:  As long as we have India and Russia funds, we might as well have a BRIC ETF.  Brazil, Russia, India and China may not have anything to do with one another - and a BRIC ETF would only be a simply marketing tool, not a sensible way to allocate capital - but an ETF tracking the four horsemen of the developing world would be an instant hit with investors.  And don't I get an asset-based payout for designing these things??

The New Europe:  This regional ETF would capitalize on the economic advantages enjoyed by countries that join the European Union (EU).  The fund would hold shares in the leading companies of countries that have joined the EU in the past five years, as well as countries that are scheduled to join the EU in the future.

Right now, that means the fund would cover the ten economies that entered the EU in 2004 - Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia - as well as Bulgaria and Romania, which are scheduled to enter in 2007.  I'd leave it up to the fund designers whether or not to hold speculative positions in countries that may enter the EU, such as Turkey, Croatia, Iceland and Macedonia.

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