ETF Prime Archive

Chat with Morningstar’s Sam Lee

Listen to The ETF Store Show every Tuesday at 9am on ESPN 1510 as we cover everything you need to know about Exchange Traded Funds and the world of investing.

Click here to listen to The ETF Store Show now.

As Exchange Traded Funds have grown in popularity, investment research behemoth Morningstar has ramped up their ETF coverage in kind.  Long known for their robust analysis of traditional mutual funds, Morningstar is now leveraging that expertise on the ETF side as investors flock en masse to ETFs.  On our most recent radio broadcast, Sam Lee, Morningstar ETF Strategist and Editor of Morningstar ETFInvestor, joined us to talk about Morningstar’s ETF research and discuss some of the key factors investors should consider when evaluating an ETF.  Sam also offered some thoughts on the financial markets, as well as a few ETFs that investors might consider for their portfolios.

In our weekly market update, we dissected last week’s comments from Federal Reserve Chairman Ben Bernanke and explained how the recent triple talking from the Fed is Exhibit A on why investors should avoid trying to trade “headline” events.  We also offered a crash course on the Federal Reserve’s dual mandate of attempting to promote maximum employment and stable prices (along with moderate long-term interest rates).  In our weekly ETF Spotlight, we gave our take on the proposed Bitcoin ETF.  While many in the financial media quickly panned the idea from the Winklevoss twins, we explained why we believe this instead highlights the power of the ETF structure and the continued innovation within the industry.  While we’re certainly not advocating investing in Bitcoins (though an investment thesis could be argued given that Bitcoins are not beholden to any government or the money printing whims of central banks), the point is that ETFs allow investors efficient and cost effective access to a wide range of investments.  At the end of the day, we believe more asset classes at our disposal (whether or not we choose to invest in them) and the ability to potentially further diversify a portfolio are net positives for investors.  Learn more about the proposed Bitcoin ETF by visiting www.etfbuzz.com.

A Handful of ETFs, a Boatload of Diversification

Listen to The ETF Store Show every Tuesday at 9am on ESPN 1510 as we cover everything you need to know about Exchange Traded Funds and the world of investing.

Click here to listen to The ETF Store Show now.

On our most recent radio broadcast, we explained how you can build an institutional caliber investment portfolio using just a handful of exchange traded funds.  The term “institutional caliber” oftentimes gets tossed around without much credence.  However, over the past several years, more and more large, institutional investors, such as pension funds and endowments, are actually managing their hundreds of millions (if not billions) of dollars using a modest number of ETFs.  In an article we highlighted on the show last year from Pensions & Investments titled “More Pension Funds See Value Investing in Fixed Income ETFs”, both the Virginia Retirement System and Stanford University’s endowment were cited as examples of large institutional investors using ETFs.  The article also quoted Blackrock Chairman & CEO Laurence Fink who said his company had worked with “an unidentified large pension fund to shift 4,000 individual bond issues into four iShares ETFs”.  More recently, as chronicled in the Wall Street Journal article “Pension Fund Takes Neighborly Advice”, the $470 million Montgomery County Pennsylvania pension fund announced that after meeting with Vanguard founder Jack Bogle, they decided to move nearly all of their money into just a handful of index funds tracking broad stock and bond markets.  In the article, the chairman of the Montgomery County Board of Commissioners said, “The folks on Wall Street do valuable work, but there is no value for the county and other municipalities to be spending these fees and getting a lower return”.

At the end of the day, that’s exactly what’s driving this shift towards index based ETFs and away from other types of investments such as actively managed mutual funds:  lower investment costs and removing the risk that an active manager will fumble their investment selection and return something less than the market benchmarks.  These are two of the key reasons we prefer ETFs at The ETF Store.  Another key factor is simply that broad based ETFs can offer excellent portfolio diversification.  On the show, we drove home this point by showing you how a lineup of just six ETFs can immediately allow you to have exposure to over 4,000 stocks across the globe, over 1,900 bonds and even some alternative assets such as real estate and commodities – all for around 20 basis points, or 0.2%.  Compare that to the expense ratio on the average actively managed equity mutual fund which will run you in the neighborhood of 1.4% and can only offer exposure to stocks.  It’s pretty easy to see why more pension funds and endowments are moving to ETFs.

In our weekly market update, we continued our discussion on the recent spike in interest rates and explained how the last few weeks have offered a classic lesson in not overreacting to short-term, headline driven market moves.  We also discussed gold’s rough year and the overall role of gold in your portfolio.  In our weekly ETF Spotlight segment, we delved into an international, inflation protected bond ETF, the SPDR DB International Government Inflation Protected Bond ETF – ticker WIP.  If you’re concerned about inflation in foreign countries and/or if you think that the US dollar will decline, this could be a solid option in the fixed income portion of your investment portfolio.  Learn more about WIP by visiting www.etfbuzz.com.