NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Monday, June 18, 2018

By Felix Salmon

The index fund, along with its cousin the exchange-traded fund, or ETF, is among the very few unambiguously positive financial innovations of recent decades. Because of them, it’s now incredibly easy and incredibly cheap for anybody to invest in the stock market by buying a broad, diversified basket of stocks—something that used to be extremely difficult to do.

More recently, though, the world of ETFs has become a maze of hundreds of weird funds serving ultra-specialized purposes for ultra-sophisticated investors. Dozens of ETFs have been launched this year alone, and there’s no good reason for any normal person to buy any of them. Buying the Amplify Advanced Battery Metals and Materials ETF, or the Salt truBeta High Exposure ETF, or the Global X Future Analytics Tech ETF, all of which have launched in the past few weeks, is just as silly as buying an obscure, illiquid stock. The great genius of index funds is that they remove from the individual investor the need to research individual stocks and to make bets on this one rather than that one. The plethora of tiny new ETFs only serves to recreate that problem. If you don’t trust yourself to pick outperforming stocks (and you shouldn’t), then you shouldn’t trust yourself to pick outperforming ETFs.

Today, however, after years of increasingly pointless ETFs being created to almost no acclaim, a new and attractive ETF has launched, one that well-advised normal people might soon be putting a lot of money into.

Photo courtesy of reynermedia.