This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Investors Should Not Live by ETFs Alone

As terrific as exchange-traded funds are, they have their limits. Investors who are tempted to rely solely on this type of investment product need to know the pitfalls of that approach, and to steer clear of a new type of product that encourages it.

Now, I have been a big fan of ETFs since their inception. They clearly offer do-it-yourself investors a chance to be better portfolio managers, and offer professional investors a chance to manage pools of capital with more efficiency. As these investment tools catch on, expect more innovation from the ETF providers, which will result in more opportunities for investors to reach their financial goals. I have unyielding faith in the benefits of ETFs; I use some in my practice and own some personally.

But ETFs are not a panacea.

In the last couple of years, a lot of new ETFs have been created, some innovative and some not. There has also been a proliferation of products that cater to ETF investors such as open-end funds comprised of ETFs, all-ETF portfolios offered by both the sell side and the buy side, and newsletters devoted to ETFs. Investors must choose carefully; to help them do so, I'd like to point out some ETF blind spots and review a new set of products, managed all-ETF portfolios, that sound great but actually just compound the disadvantages of ETF investing.

Know ETFs' Limitations

ETFs are just one tool available to investors. Others include stocks, closed-end funds, OEFs, structured products and unit investment trusts. As much as I believe ETFs help empower investors to get better results, they will not always be the best possible tool to capture specific parts of the market.

I mean that geographically in particular. While there are several ETFs that give investors broad exposure to regions such as China, Austria and Canada, there are some gaps. For example, Ireland offers a healthy and growing economy with a pro-business government, and is one of the wealthiest countries in Europe per capita. Yet there is no ETF that U.S. investors can easily access. There is a CEF, The New Ireland Fund (IRL), and there are several NYSE-listed ADRs. I capture this market for clients with one of the ADRs.

Norway is another important investment destination because it is a huge oil producer. But the only way to gain exposure to this country's economy in the public markets is through a very few ADRs. There are no ETFs, CEFs or even OEFs I can find that isolate Norway.

1 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,958.88 -23.71 -0.14%
S&P 500 1,975.30 -3.61 -0.18%
NASDAQ 4,451.1960 +6.2870 0.14%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs