As many experts predicted, investors are beginning to pull their money out of narrow niche exchange-traded funds, many of which are performing quite poorly of late, The Wall Street Journal reports.
And, certainly, there are many sector-specific ETFs, as fund companies have been anxious to launch as many ETFs as possible given their tremendous popularity. With all of the major indexes taken or a version of them created through enhanced indexes, fund firms turned to narrower and narrower sectors for new material.
Sector-specific ETFs have about $55.8 billion in assets, with $8.9 billion in net flows in 2006, according to data from Morgan Stanley. Broad market ETFs, on the other hand, have about $170 billion in assets under management and took in a scant $1.1 billion in flows last year.
“These nouveau index funds starkly contradict each of the principal concepts underlying the original index fund,” John C. Bogle criticized earlier this year. “Surely holding small segments of the market offers less diversification and commensurately more risk.”
Since its launch four months ago, the iShares FTSE NAREIT Mortgage REIT ETF has lost a staggering 37% of its value.
Christine Hudacko, a spokeswoman for the fund’s investment advisor, Barclays, cautioned, “Investors need to be aware, when they look at narrowly focused funds, that they involve more volatility.”
Likewise, State Street Global Advisors’ S&P Homebuilders ETF is down 48% since its launch in early 2006.