No less an investor than John “Jack” Bogle, creator of the highly popular commercial trading giant Vanguard, is giving the exchange traded fund a run for its running. Mr. Bogle does not question that the ETF is one of the greatest innovations of the modern investment world. The question that he has is whom the innovation is actually working for.
As a creator of exotic investment tools, Mr. Bogle is no stranger to the effects of so-called “easier ways to invest.” Mr. Bogle says that ETF is there to serve the brokers and traders of Wall Street rather than individuals who are looking for easier ways to trade groups of equities, bond or commodities.
There is no doubt that the exchange traded fund is a highly popular investment tool for quite a few reasons, the foremost of them being that individuals can now easily trade blocks of investments at once. No one has to wait on the long-term landscape of a mutual fund in order to invest in baskets with an ETF.
However, as Mr. Bogle sees it, this increased volume in trading is only truly helping the people who directly benefit off of trading commissions. It has also opened up the market to short-term traders who create more volatility in the marketplace, destroying the viability of long-term traders who are looking to invest in solid companies.
His comments seemed to fly in the face of the company he founded – Vanguard currently holds around 16% of its own assets in exchange traded funds. However, he says that he actually turned down the opportunity to create an ETF based against the Vanguard 500 in 1993. The idea was then pitched to State Street, who turned it into SPDR, one of the largest ETFs in existence today.
The chief executive of Blackrock, Larry Fink, seems to agree with Mr. Bogle. Mr. Fink does not hold exchange traded funds in high esteem, especially leveraged ETF’s. He ascribes to them the same structural problems that options had when they blew up the market in 2008.
There are, of course, plenty of dissenters to this opinion. One of them would actually seem to be the current leadership at Vanguard – the company remains the third largest provider of ETFs globally by assets in the investment world.
