Tags: Hulbert | ETFs | investors | traders

Hulbert: ETFs Might Turn Investors Into Traders

By    |   Monday, 03 March 2014 09:59 AM

Investors in exchange-traded funds (ETFs) tend to trade more often than do those investors in standard open-end mutual funds, and that increased trading could lead to trouble, says Mark Hulbert, editor of Hulbert Financial Digest.

"There is a downside to how cheap and easy ETFs make it to buy or sell broad baskets of stocks: the danger of becoming a short-term market timer, a losing proposition for most individual investors," he writes in The Wall Street Journal.

"If you want to invest in the broad stock market for the longer term, you may want to favor traditional open-end index funds."

Editor’s Note:
Retire 10 Years Earlier With These 4 Stocks

Hulbert cites a 2007-11 study conducted by Vanguard Group of retail accounts holding four different Vanguard funds that offer the option of either an ETF or open-end shares.

Customers opting for ETFs were more than twice as likely to be frequent traders, according to Vanguard.

Vanguard concedes that some of the difference was because ETFs attract investors who are predisposed to active trading; however, statistical modeling shows this accounted for less than half of the trading activity of ETF investors.

While the Vanguard study doesn't reveal the returns of the ETF investors versus the open-end fund investors, Vanguard founder John Bogle tells The Journal he strongly believes the ETF investors achieved a lower return on average, thanks to their frequent trading.

"If you don't think you can resist the urge to trade, then stick with open-end funds," Hulbert suggests. "For almost every ETF there is a corresponding open-end index fund that invests in virtually the same stocks."

Some experts also criticize the usage of ETFs with a narrow focus.

"The market has been spliced too finely, and people think all of these ideas work, but the need to trade the market on every tick is not something investors need to avail themselves of," financial author Brian Portnoy tells MarketWatch.

Editor’s Note: Retire 10 Years Earlier With These 4 Stocks

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Investors in exchange-traded funds (ETFs) tend to trade more often than do those investors in standard open-end mutual funds, and that increased trading could lead to trouble, says Mark Hulbert, editor of Hulbert Financial Digest.
Hulbert,ETFs,investors,traders
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2014-59-03
Monday, 03 March 2014 09:59 AM
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