Sue Longhurst Sutton Ontario

extend their rally Funds investment redefined

By Tom Lauricella

investment funds traded (ETF, for its acronym in English) were once an obscure niche in the mutual fund industry. Not anymore.

To find evidence of this, just look what has happened since the markets began to recover from the global financial crisis. Since March 2009, when the U.S. stock market touched its bottom, investors have pumped $ 57,000 million in such funds holding U.S. stocks. During the same period, funds that invest directly in U.S. equities suffered withdrawals of U.S. $ 66,000 million according to Morningstar Inc.

In total, investors around the world today have $ 1.4 trillion (million million) invested in about 3,500 publicly traded portfolios, according to investment firm BlackRock Inc.

But these funds, which are basically mutual funds that operate according to indexes and traded like stocks, have done more to earn money.

For investors, large and small, have redefined the basic elements of the investment. Have proved easy to use to build diversified portfolios. With relative transparency, low costs and efficiency from the point tax perspective, provide access and exit, easy to markets and strategies. For professional traders, these funds offer a good margin, allowing them to change positions or jumping great opportunities relatively quickly.

In the process, the ETF has changed the way stocks and bonds are traded. The purchase and sale of shares of such funds has repercussions throughout the market. Wall Street firms have reconfigured their trading and retailing operations to focus more on ETF and less on individual stocks. On any given day, these funds are among the values \u200b\u200boperated in the U.S. markets

Al

same time, however, have also generated potential pitfalls for investors, especially individuals. For example, with its ability to be traded several times during a day-in place at one time with mutual funds, ETFs raise the question of whether they provided too much trading of securities. And some experts argue that the rush of ETF providers to capture market share has resulted in fund offerings that are either not needed or are directly dangerous to small investors,

ETFs began not as exotic instruments. The first was launched in 1993 by State Street Global Advisors, State Street Corp., with clear mandate to continue the performance of Standard & Poor's 500. Today, SPDR S & P 500 is the largest ETF, with about U.S. $ 90,000 million in assets.

But as the number of suppliers and products grows, so does the complexity of their strategies. Many promise not only to track those indexes, but also leverage the profits, and provide secure returns reverse currency hedging, all to win over investors who are looking for sophisticated tools to meet specific needs of some portfolios. Attractive retail

Thanks to its variety, not just for runners professional or sophisticated. ETFs are having an increasing presence in the portfolios of people who make their own decisions, said Peter Crawford, marketing director of external funds at Charles Schwab, a brokerage firm U.S. retail Among the Schwab clients classified as individuals, ETF assets grew in December 2010 to 37% of their portfolio compared to 30% in late 2009.

In Northern Oak Capital Management, a Milwaukee firm, most clients' portfolios has been redesigned so as to turn around the ETF. Ten years ago, portfolios focused on individual stocks, said the chief investment officer David Becker. Now, 50% investment in shares of their clients are in these funds.

The company follows a strategy "of central and satellite" that appeared common since more sophisticated funds. The consultants maintain a diversified portfolio of ETF Central and then added or subtracted such funds are concentrated in a specific market segment, as emerging countries, depending on your perspective.

But some say the downside of the growing popularity of these funds is the "gold rush" has caused among the promoters of the funds, an attitude that involves risk and complexity levels that far exceed those to which the investor Common is used.

critical Perhaps the most arduous of the ETF has been the founder of investment firm Vanguard, John C. Bogle. The executive is opposed to all that encourage individual investors to engage in high-frequency trading. In 1999, Bogle ETF compared to a gun: very good for hunting, "but also excellent for suicide."

Other issues were also raised. Due to the complexity of commodity futures, ETF's performance has varied widely some of the movements in prices of commodities underlying them. For example, in late March, the fund's shares fell U.S. Natural Gas 17% the previous year, but natural gas prices were 7.4% higher.

Don Phillips, director of fund research at Morningstar, says that in the ETF is still a gun dealer mentality: "We only manufacture the weapons and what people do with them is not our responsibility."