3 Lies About ETFs

Similarly, ETFs are not to blame for improper application, mistakes, or other user problems that arise. Self-destructive behavior existed long before the invention of ETFs and its existence today most certainly isn’t because of ETFs.

Short ETFs are to blame when financial markets crash.
This particular claim made against ETFs usually surfaces whenever financial markets are in turmoil. Why? Because after running out of reasons to explain why financial markets are crashing, the “short ETFs are to blame” is a convenient crutch.

ETFs that short markets are designed to increase in value when the price of the assets they track declines. For example, the ProShares Short S&P 500 ETF (SH) aims for 100% daily opposite performance of the S&P 500. That means if the S&P 500 is down by 1% on any given day, SH should be ahead by 1%. Likewise, if the S&P 500 climbs by 1%, SH should be down 1%. Some short funds – also known as “inverse” funds – utilize 200% or 300% leverage to magnify their daily performance.

Short ETFs don’t trigger crashing markets any more than put options, another type of derivative, triggers crashing markets. These products merely exist to allow investors a way to express their opinion about the market.

Also, with just over $21 billion in assets, short ETFs listed in the U.S. represent a very tiny slice of the entire ETF market. In other words, it’s a very small non-market moving footprint in the global financial marketplace.

The many attempts to discredit ETF investing will not stop demand or usage of ETFs. They are flexible investment products that offer benefits for investors with a short-term, long-term, and intermediate time horizon.

While ETFs do offer significant advantages, they are not perfect. Why? Because the “perfect” financial product doesn’t exist.

Ultimately, the portfolio building blocks you use for your investment and retirement plan will largely depend on your personal goals and preferences – not by what critics say.

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Disclosure: None

Disclaimer: Ron DeLegge has analyzed and graded more than $125 million with his Portfolio ...

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Ron DeLegge 4 years ago Author's comment


You're 100% correct, I'm biased! Glad you picked upon this. And more specifically, I'm biased toward a) indexing a person's core portfolio and b) using #ETFs as the building portfolio building blocks.

Finally, it's OK to have financial biases, so long as those biases are correct and firmly rooted in improving the odds of long-term investment success.

Beware of financial pundits or advisors that say they're "unbiased." Why? Because he who stands for nothing, will fall for anything.

Carol W 4 years ago Contributor's comment

Hooey- of course you're biased. #ETF's, since their existence have made the market far more volatile along with #algos and #HedgeFunds.