Morningstar Advisor - Summer 2008 - (Page 13)

Rick Ferri CEO Portfolio Solutions Jim Wiandt President Index Publications fees continue to creep higher. Lower management fees on new ETFs, because Fund providers labeling active-management strategies as “indexes.” Most ETFs launched since 2003 follow active management strategies. The time has come to drop Lower fees as scale grows. sticks mode of product development. The throw-it-on-the-wall-and-see-what- mask and call these strategies by what they are. the indexing If the tax- and cost-efficient structure of ETFs works for index funds, it works doubly for active management. ETF companies closing funds that have not reached a profitable asset level. There have been some interesting product launches, but gains from innovation have shifted from potential alpha for investors to ETNs and ETFs packaging institutional strategies and scale for retail investors. A lot of the international regional, size, and style choices that have opened up recently. higher fees for fund providers. If the IRS allows ETNs to be as tax-efficient as the providers hope, there could be a huge rush to launch ETNs in every asset class. Unfortunately, the cost of ETNs will likely negate that tax advantage. The failure Likely ETNs and the product development around them. Active ETFs could also really shift the landscape. of active management brought me I am an investing geek governed by the old-fashioned to indexing. Lower costs, greater tax efficiency, and trading efficiency brought me to ETFs. There is no real threat. Only an adverse change in SEC regulation or IRS tax ruling can derail the freight train. idea that the best way to maximize my return is to pinpoint (and hold to) my asset allocation and to do it at the lowest possible cost. If one of the ETNs or swap-based funds, for example, blew up because of credit risk, that could tarnish even parts of the industry that have no such risk built into the products. Jack Bogle, Nate Most. Jack Bogle. First, I would not try to sell Jack anything if I wanted to stay his advisor. Second, Jack has no issue with the structure of ETFs. His issue is with the product providers promoting ETFs as short-term trading vehicles. I’d tell him to trust smart investors to actually act in their own interest and not trade themselves into bad returns. Many investors use ETFs intelligently. MorningstarAdvisor.com 13 http://MorningstarAdvisor.com

Table of Contents Feed for the Digital Edition of Morningstar Advisor - Summer 2008

Morningstar Advisor - Summer 2008 Contents Letter from the Editor Contributors Inbox College Planning: Solutions and Concerns ETFs: The Next Chapter Engineering Financial Advice Investment Briefs Flexible vs. Style-Pure Managers: The Evidence Forging a New Commodity Index Work Your Way Through College Planning Sizing Up the Options Best and Worst 529 College-Savings Plans A 529 Travel Guide 10 Tax-Smart Tips for College-Savings Planning Global Dialogue How Sequoia Cranks Out Good Returns Year After Year The Many Layers of David Winters Living on the Edge Stocks to Buy Once a Decade With Munis Feeling the Pain, Some Opportunities Arise Health Care Provides Shelter from Economic Storm Help Your Clients Get More Out of Their Bond Portfolios Mutual Fund Analyst Picks 50 Most Popular Equity ETFs Undervalued Stocks Most Popular Variable Annuities New at Morningstar New on MorningstarAdvisor.com Closer to Fine

Morningstar Advisor - Summer 2008

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