The ETF Flood

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It’s no secret that new ETFs are being brought to the market as fast as sponsors can obtain regulatory approvals. I have touched on this before that having all these investment choices available does not mean you should jump on the band wagon and buy any new offering.

MarketWatch had a piece on the pitfalls and potential problems when investing in markets that are thinly traded. For one, if an ETF has trouble attracting enough inventors, you can be sure that the expense ratio will be higher. Additionally, the bid-ask spread may widen to a point where liquidating a position may turn a profit into a loss.

I for one will stick to using only well traded ETFs with heavy volume so that liquidating a large position won’t be a problem when the markets head back south eventually.

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