A new analysis by Vanguard Group founder John Bogle indicates that investors generally make poor decisions when buying and selling exchange-traded funds.
Bogle compared the returns of 79 ETFs in a variety of major asset categories over the past five years to the returns of the average dollar invested in those ETFs over the same time period.
His study revealed that investors trading in and out of Vanguard ETFs did worse, on average, than investors in Vanguard mutual funds — and that they did worst in high profile and volatile sectors like emerging markets, financials and REITS.
“These numbers … are unbelievably consistent,” Bogle told Index Universe.
“Out of 79 ETFs we covered, 68 had investor returns that were … short of the returns earned by the funds themselves.”
On a simple average basis, ETFs in the study delivered a 1 percent compounding return over the trailing five years, translating into a cumulative gain of 6 percent.
Investors, however, earned a 3.5 percent average compounding return, translating into a cumulative loss of 12 percent.
“When you combine those, you’re talking about 18 percent of investor capital that’s been lost by all this trading,” Bogle points out.
Leveraged ETFs are especially troublesome for individual investors because they need to be closely timed, says investment advisor Maury Fertig.
"For the most part leveraged ETFs are completely inappropriate vehicles for individuals," Fertig, told Smart Money.
"They have to be constantly evaluated … you have to babysit the thing."
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