Bogle: ETFs great for trading, not so great for investors

Bogle: ETFs great for trading, not so great for investors
So-called father of indexing John Bogle still not a fan of exchange-traded funds, saying that the sheer volume of them makes 'a muddy pool muddier.'
MAR 08, 2012
John Bogle, founder of The Vanguard Group Inc., believes low-cost, passive indexes are the best way to invest — as long as they're not offered through an exchange-traded fund. “There's no question that ETFs are the greatest trading innovation of the 21st century,” Mr. Bogle said today at the Bloomberg Portfolio Manager Mash-Up in New York. “But the question is, ‘Are they the greatest investment innovation?' and the answer is ‘no.'” Mr. Bogle recalled seeing an ad for the SPDR S&P 500 ETF that touted the ability to trade the S&P 500 throughout the day and thinking, “Who the hell wants to do that?” The ability to trade the funds intraday leads to bad decisions by investors, such as buying high and selling low, which cause them to underperform over the long run. Mr. Bogle even has qualms with the ETF providers for the influx of products, which he says makes it even more difficult for investors to pick the right fund. “There's something like 2,000 ETFs now,” Mr. Bogle said. “That's almost as many stocks as there are Mr. Bogle called out BlackRock Inc. for its aggressive product launches. “BlackRock is just making a muddy pool muddier,” he said. BlackRock's ETF arm iShares offers more than 260 ETFs, seven of which were launched today. That's nearly 100 more than the next biggest ETF lineup. Vanguard currently offers 47 ETFs. A request for comment from BlackRock made at 2:45 p.m.on Thursday was not returned. Mr. Bogle does have one thing in common with BlackRock though — a bullish outlook on stocks over the next decade. He didn't go as far as BlackRock's chief executive Larry Fink did recently and claim that investors should be 100% in equities. He did say, however, that the case for stocks to outperform bonds over the next 10 years was “pretty simple.” Bond yields have a 90% correlation to 10-year returns, Mr. Bogle said. With bond yields at historic lows, that should translate to returns of no more than 3% or 4% over the next 10 years, he said. Stocks, meanwhile, should benefit from a strengthening U.S. economy and have returns closer to 7%, he said. “But not without a few bumps along the way.”

Bogle, mashed up

Latest News

FINRA suspends Centaurus broker who piled clients into REITS, BDCs
FINRA suspends Centaurus broker who piled clients into REITS, BDCs

Most firms place a limit on advisors’ sales of alternative investments to clients in the neighborhood of 10% a customer’s net worth.

Advisor moves: LPL Financial, Osaic, Raymond James all welcome new teams
Advisor moves: LPL Financial, Osaic, Raymond James all welcome new teams

Those jumping ship include women advisors and breakaways.

Mariner announces an acquisition double, adding $1.7B to its AUA
Mariner announces an acquisition double, adding $1.7B to its AUA

Firms in New York and Arizona are the latest additions to the mega-RIA.

Michigan insurance agent to stand trial after charges of insurance fraud
Michigan insurance agent to stand trial after charges of insurance fraud

The agent, Todd Bernstein, 67, has been charged with four counts of insurance fraud linked to allegedly switching clients from one set of annuities to another.

NY Appeals court tosses $500M civil fraud penalty against Trump; upholds injunctive relief
NY Appeals court tosses $500M civil fraud penalty against Trump; upholds injunctive relief

“While harm certainly occurred, it was not the cataclysmic harm that can justify a nearly half billion-dollar award to the State,” Justice Peter Moulton wrote, while Trump will face limits in his ability to do business in New York.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.