Proof you should always read a fund’s prospectus before investing
ETFs, Mutual funds, Personal finance, Value investing
This week’s Barrons (dated 7/3/2006) featured an article about PowerShares ETFs in an article entitled “The Odd Couple” (subscription required). Personally, I’ve found ETFs to be a better solution than mutual funds for my investment objectives, but the article pointed out that “ETF assets have more than tripled over the past 4 years to $469B [and] there are more than 212 offerings…expected to grow at an average annual pace of 33%”. Nonetheless, the mutual fund industry is still a much bigger whopper at $9.5 trillion, so I suppose there’s still plenty of room out there for ETFs to grow.
I’d never heard of PowerShares ETFs, which offer a way to invest in extremely specialized industries (such as varieties of clean energy). But I was pretty shocked to read in the article that “Unlike most ETFs, PowerShares fund components are reshuffled quarterly in order to reflect best-in-show stocks within each sector.”
I had to look into this further. I’m not averse to trying out different investment methods (just look at the title of this site), but I couldn’t fathom the point of owning an ETF whose holdings changed every quarter. Not only that, but the problem with funds with high turnover rates is that they tend to go hand-in-hand with higher taxes, since usually whenever an asset is sold, a taxable event occurs.