Turning ETFs Into A Casino

Ulli Uncategorized Contact

I can’t believe that this could actually be true. A story in the Money section of the NY Daily News features a new series of ETFs called StateShares that allow you to buy or sell portfolios based on 21 state specific stock indexes. Each of them contains some 50 issues. There will also be a composite of 500 stocks available based on these state indexes.

In other words, if the mood strikes you, you can be long California and short Texas. No, I really didn’t make this up. Had the date of this story been April 1st, I might have caught on quickly, but April 30th?

To me it seems like a glorified gambling attempt; I simply can’t see where having these types of ETFs would add value to an investor’s portfolio.

Am I missing something?

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Comments 4

  1. In terms of these products adding value to an investors portfolio (or not) I don’t think you’re missing anything.

    But…

    With Coca-Cola and Pepsi-Cola to choose from, do we really need Big K Cola? No, but they sell gallons of it.

    If you view the investor as a consumer (as I’m sure many of these financial entities do) then these products are just the ETF form of Big K.

    That’s how I see it when I see the flooding of the market with one after another ETF product. Thing is, I can’t imagine these ETFs will have nearly enough turnover (volume) to make them attractive to anyone.

  2. Good point, G.H.

    Where is the volume going to come from to allow buys and sells to happen quickly without outlandish Bid/Ask spreads?

    Had a client today, who needed to liquidate a bank stock he “had to have” a couple of years ago. It was priced at 8.00, but he could have gotten only 7.65. Ouch!

    Ulli…

  3. The Massachusetts economy surged in the first quarter, nearly quadrupling the national growth rate. California is the 7th largest economy in the world, bigger than most countries.

    If you look at the general mutual fund industry, flows into non-US funds are huge, but the growth is here in the US. Read the prospectus for StateShares as to what the criteria for investment is — pay particular attention to how the companies are being weighted. By employees. It captures the economic drivers of each state.

    Best to read about the product before writing about it off of news reports.

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