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The ETF Craze: Beware of These Potential Perils

The list of "quirky" ETFs seems to be growing faster than you can keep up with them

by Bob Stokes
Updated: July 12, 2017

There seems to be an exchange-traded fund for almost every investment niche. But, beware: some may not perform like you expect. Our Elliott Wave Financial Forecast offers a cautionary example.

 

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[Editor's Note: The text version of the story is below.]

The number of exchange-traded funds (ETFs) has exploded since 2003. Statista.com puts their global number at 4,399 at the end of 2015.

More have arrived on the financial scene since then.

And, according to CNBC (July 5), more than $4 trillion is now invested in ETFs.

Robert Prechter's new book, The Socionomic Theory of Finance, pinpoints the reason for the popularity of ETFs:

As a long term, maturing trend toward positive social mood has induced a desire to speculate, interest in the stock market has grown, and so has the number of its measures.

Indeed, there seems to be an ETF for almost every investment niche.

Now, even the man who produced some of Michael Jackson's biggest hits has an ETF named after him (The Financial Times, June 27):

The overflowing smorgasbord of exchange-traded funds is set to welcome another esoteric dish to the table, with legendary music producer Quincy Jones lending his name to a music-streaming ETF.

Other "quirky" ETFs include:

  • The Obesity ETF (SLIM)
  • Millennials Thematic ETF (MILN)
  • SPDR SSGA Gender Diversity Index ETF (SHE)

And the list goes on.

But beware: There's a potentially hazardous side to some new ETF offerings.

Our July Elliott Wave Financial Forecast explains:

In May ... the Security and Exchange Commission approved ForceShares Daily 4X US Market Futures Long Fund, the first ever quadruple-leveraged exchange-traded fund. The ForceShares short fund purports to offer the same quadrupling of gains in a decline. ... [But] ETFs have been known to misfire, especially in times of volatile downside moves. Few seem to remember, but as the S&P dropped 5.3% on August 24, 2015, some long ETFs suffered much larger declines, some as high as 46%. 

A few days after those comments published, CNBC ran this headline:

Explosion in money flowing into ETFs may lead to a market liquidity problem, Bank of America says

The explosion in the number of ETFs may continue to expand for a while, but that trend will probably change with the arrival of the next inevitable bear market.

Our latest Elliott wave analysis reveals the clues to watch for as that reversal approaches.

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