Don’t let it be said that Morningstar doesn’t have a sense of humor. A recent article called “10 Surprising ETF Facts” covers an array of ETF facts ranging from amusing to downright shocking.
For example, did you know that 30% of all domestically listed ETFs have been launched in the last 6 months? That’s a scary thought I touched on before, because some kind of track record is needed before you can make an intelligent decision whether an ETF is suitable for current market conditions or not.
Here’s another good one: The average expense ratio of ETFs launched in the last 6 months is 0.67%. The average ratio for ETFs launched before December 2006 is 0.45%.
And you really believe that there is no inflation?
Comments 3
Hi Ulli,
I wonder just how long it will be before the management fees on ETFs soar and the fund companies rip us all off again like they have been doing for years with managed mutual funds?
Maybe it will happen when all the managed mutual funds have to close for lack of interest and they will have to raise fees on their ETFs to stay in business.
I certainly hope some do go out of business because they have ripped us off with poor performace, high fees and long holding periods or we have pay huge penalities.
They as a rule do lousy thru all the bear markets in the past and then brag about their gains in bull markets. The long holding periods for managed mutual funds upset me more than their fees though. A 0.30% fee should be a high enough for the standard index funds. If it isn’t enough then fire the over paid ETF managers and get someone who would appreciate the job for half the salary.
Larry G.
Larry,
I don’t think that ETF fees will soar because, after all, they’re just indexes and not actively managed funds. As such they require much less expertise and thereby eliminate the need for a hot shot fund manager.
However, any ETF following the underlying index will suffer in bear market conditions and therefore it is the individual’s responsibility to apply an investment method that will keep a portfolio protected from severe downturns.
Yes, Buy-and-Hold followers will suffer with ETFs in the same way as they have with mutual funds during the 200-2003 downturn.
Ulli…
I’d like to offer a reason why I believe there will always be low expense ratio ETFs, and quality ones.
If you look under the hood of many quality mutual funds, specifically funds that are based on particular indexes (i.e. the MSCI EAFE Index), you will notice that included among the holdings are the mirror equivilent of the index ETF. For example, International Equity Index Fund (TREIX), based on the aforementioned index, contains almost 2% of iShares MSCI EAFE Index Fund, a popular, liquid, and reasonably low expense ETF.
I’m no industry expert or inside knowledgeable participant, but if mutual funds are investing in these instruments (probably to have some liquid assets available for investor liquidations) then it just seems to me that index based ETFs will surely be available in low-cost form for some time to come. And we can all benefit from them just as mutual fund companies do.
G.H.