Watch Out for ETF Misinformation

This ETF is another way for investors to gain small-cap exposure (more specifically, small-cap growth). Since its debut last fall, it has slightly outperformed the iShares Russell 2000 Fund(IWM) and the iShares Russell 2000 Growth Fund(IWO). It has been out only a few months, and the lead is slight, but again, this fund has started out doing exactly what it claimed it would.

For investors who are looking for an edge, the extra research is always worth it. I strongly disagree with what seems to be the blanket indictment of these new and original ETFs.

Looking Forward

The SmartMoney author is right: "What you think you see might not always be what you get with an ETF," so "know what you are holding." But I take serious issue with his conclusion from this: a preference for "ETFs based on the well-established indexes at families like Standard & Poor's, Russell and Wilshire" because they "have decades of performance track records so it's easy to see how they'll perform in any market condition."

He also characterizes some of the great innovations in ETFs, which allow investors the flexibility to capture a market segment without the higher risk associated with owning all those individual stocks, as something that desperate "ETF firms ... have resorted to, designing new products around exotic and unproven indexes." That's true for some products, but as always, investors who do their homework will know which products are worth their capital and which are tantamount to desperate ploys.

Buying an index fund, regardless of what type of index it's based on, has to be a forward-looking process. And even "exotic and unproven" indices can go up. Investors are better off sticking with the better half of this article's advice and making sure the ETFs they choose fit the bets they want to make.

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Please note that due to factors including low market capitalization and/or insufficient public float, we consider Claymore Ocean Tomo Patent and Claymore/Sabrient Stealth ETF to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

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