NakedShorts has taken the occasional slap at Mansuetoville (d/b/a Morningstar) for genuinely numbskullian ETF analysis. And even Random Roger, all moderation in all things and rarely a hard word for anyone, has unloaded occasionally (here and here and here, for example). But, what’s this? Paul Justice with an overdue sort-of rip on ‘thematic’ ETFs making up the numbers with hardly-thematic-at-all holdings (Thematic ETF Shortcomings: A Mighty Wind?):
Take the two wind ETFs that have surfaced over the past two months...both of these funds give investors significant exposure to the biggest names in wind power equipment producers, a feat that is not easily accomplished by US investors because most of these firms are based in Europe and lack American depository receipt [ADR] issuances...
...But for other underlying holdings, such as Royal Dutch Shell, E.ON, BP, RWE and NRG wind power is about as important to their overall returns as frog legs are to a balanced diet.
It’s hardly a new problem. The almost three-year-old PowerShares Lux Nanotech ETF (PXN) has roughly 25 per cent in the likes of Toyota (TM), du Pont (DD), HP (HPQ), IBM (IBM), GE (GE) and 3M (MMM). And that’s letting it off Intel (INTC) and Elan (ELN) — another 10 per cent — because it could be argued that teeny tiny stuff is material to both those businesses. The others, not so much, although GM is making spectacular progress toward becoming a nano-company.
But let’s not slap the ETF providers around too hard. While guilty of over-reaching — nanotechnology, where a lot of the lifting is done by private, venture capital-funded companies, is a good example — they’re stuck with mostly reasonable rules that require portfolios to hold a certain number of stocks, and avoid undue concentration.
The good thing is that, last I checked, nobody’s forcing anybody to buy this stuff. And as far as Mansuetoville is concerned, one fact-based, if moderately critical, article could just be the head fake that proves the rule of its blatant bias toward the MutualFundistan portfolio jihadis. Just this once, credit where it’s due.
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Aug 08 04:29 PM- Mark Henwood
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