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RVB's Market Musings

What began here as an avenue to interact and learn has far exceeded those goals.

If you are a prospective employer, please consider this site a place where you can see my passion for investing...

Thursday, July 07, 2005

"Intelligent" ETF's

Welcome back from vacation!

Today, on BusinessWeek, there was an article that caught my eye. It was titled "Intelligent ETFs". If you don't know what an ETF is, well, where have you been? Just kidding. Exchange Traded Funds are basically mutual funds with two major differences (there are other differences but I will not discuss them):

-They can be traded at any time on the clock when the market is open. Mutual funds are traded on an end-of-day closing price
-They typically do not trade nearly as often as a mutual fund. Thus, commissions are lower

The article talks about PowerShares, run by PowerShares Capital Management. The ETF's are built to try to beat the overall market indices. In their short history, they have been able to do just that with their shifting of stocks based on performance.

These ETFs are an interesting play. You get a 0.60% expense ratio which is MUCH higher than most ETFs, but you get more active management of the ETF, which on the surface seems worth the price.

PowerShares do not have a history of success, which could mean more risk than buying the SPY (S&P 500 Spyder). However, these funds seem like something that I would perhaps offer if I had my own investment firm, and it looks possible that Powershares just MIGHT wind up in my personal portfolio!


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