This Day On The Street
Continue to site right-arrow
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!

Cramer's Got It Wrong on ETFs

Jim Cramer has an interesting video called "Cramer Says ETFs Don't Make Any Sense."

Jim makes a couple of points I agree with and a couple I don't. One big issue for him is that ETFs simply represent the creation of product by Wall Street to be sold to an unsuspecting public. That new product is a big source of revenue. While new products do bring revenue to firms like Merrill Lynch and Morgan Stanley, ETFs are not part of that game. Big investment banks are not part of the process of listing an ETF.

The revenue comes from delivering a successful product that draws investor interest and assets. Revenue comes from ongoing management fees, not the mere listing, as is the case with closed-end funds or common stocks. From the fund provider's viewpoint, more revenue comes from a product that draws ever-more assets that pay the expense fee in perpetuity.

In Jim's video, he talks about ETFs as being anti-diversification and draws a parallel to owning tech stocks from different subsectors and thinking you're diversified. I watched that part of the video three times, and I still am not clear on what he meant. That part of his argument seemed to focus more on investor behavior as opposed to the structural elements of ETFs.

Jim believes that you end up clustered. If you are clustered, it has nothing to do with the product. The S&P 500 has 10 sectors. The way I build portfolios (and I doubt this is unique) is to look at the weight of each of the 10 sectors, decide how true to the current weights I want to be and, finally, find the best way to build each sector.

1 of 2

Select the service that is right for you!

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 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • 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