The Wall Street Journal reports that PowerShares Capital Management LLC (subscription required) has "filed with the Securities and Exchange Commission for three new exchange-traded funds that will hold different combinations of other PowerShares stock and bond ETFs."
Here's why this is good for small investors: ETFs with their low expense ratios are a great product, and diversified portfolios of ETFs allow small investors to put together retirement portfolios easily, without the help of an expensive financial adviser.
But there's a problem: If you have a portfolio of $5,000 and divide it up among ten funds and have to pay a commission of $10 per trade, that works out to a front-load of 2% -- then another 2% when you sell. Unless you have a fairly sizable chunk of money to invest, buying multiple ETFs isn't very cost savvy.
Funds of ETFs will be a practical option for a lot of retail investors and could take market share from two groups that deserve to lose market share: financial advisers and big mutual fund companies.
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Reader Comments (Page 1 of 1)
11-19-2007 @ 12:17AM
EvaluatingStocks.com said...
I agree - this is a good thing. Investors forget that fees, along with inflation, are huge killers of portfolio returns.