Tuesday screencast: ETFs as imperfect proxies

abnormalreturns
March 22nd, 2011

We have often stated that “ETFs are tools”, easily used and abused. Maybe we need a corollary to that axiom: ETFs are proxies. Indeed they are imperfect ones at best. Just as models are approximations of reality, so too are ETFs that seek to cover a certain market or sector. Some ETFs become so popular they become THE market in the minds of the investing public. Every ETF provider has to make certain trade-offs when it comes to designing an underlying index. These include number of holdings vs. market cap vs. liquidity vs. geography. The list goes on. In analyzing ETFs we have to recognize that these funds are at best approximations of the underlying exposures. In short, you need to look beyond the ETF name to the underlying holdings. In today’s screencast we look at ETFs as proxies, albeit imperfect ones.

Items mentioned in the above screencast:

A small-cap alternative to the popular Market Vectors Agribusiness ETF. (IndexUniverse)

The IQ Global Agribusiness Small Cap ETF (CROP) launches. (ETFdb)

Beware your Japan ETF exposure. (FT Alphaville)

Daily price chart of the Market Vectors Agribusiness (MOO) ETF. (Finviz)

Abnormal Returns is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com. If you click on my Amazon.com links and buy anything, even something other than the product advertised, I earn a small commission, yet you don't pay any extra. Thank you for your support.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Tickers: CROP, EWJ, MOO