The Herald Bulletin

Afternoon Update

Columns

August 23, 2013

'Big Joe' Clark: Investors want options

2013 has been a tough year for many money managers. Nearly any attempt to seek diversification within a portfolio has punished as many international markets and different sectors and fixed income have been unable to keep up with the all-mighty U.S. large cap.

This has posed a problem from mutual fund managers who are tasked with the responsibility of sticking to their style box – meaning they must adhere to keeping their investments in specific asset groups. With investors becoming frustrated with varying levels of fees within mutual funds and the often inflexibility of their management, many investors are turning to Exchange traded funds as their vehicle of choice for investing.

Exchange traded funds (ETF) have provided investors with more options for their portfolio at a time when mutual funds ruled the world. These investment vehicles trade throughout the day like stocks but have a basket of holdings similar to a mutual fund. An ETF can be viewed as a specialist while a mutual fund is more like a general practitioner.

A general practitioner treats patients with everyday medical needs, one minute he might be performing a routine checkup while the next he is diagnosing the flu, they serve an important role and can user their expertise across many fields of medicine. However, a specialist is oftentimes an expert in a single field of medicine, whether it is the heart, brain or bones. Each ETF has a specialty; an exchange traded fund that tracks a technology index should not be expected to one day start investing in grocery stores or oil companies.

Investors need options, many don’t want to be pigeonholed into just being able to allocate their assets to a handful of general go anywhere, invest in anything funds. This is one of the reasons for the increase in popularity of ETFs.

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