Not To Worry Jack Bogle, Investors Aren’t Overtrading ETFs

Not To Worry Jack Bogle, Investors Aren’t Overtrading ETFs

Ed. Note: This article first appeared in Marketwatch

Like savvy comic-book collectors, investors of ETFs aren’t ruining the value of their holdings by taking them out and playing with them.

According to S&P Global Market Intelligence, advisors and retail investors who use ETFs are keeping their positions for a meaningful amounts of time, with the average holding period more than two years for the most popular fund categories.

The data suggest that investors are by-and-large avoiding the risk of overtrading, something that many—including Jack Bogle, the former chief executive of Vanguard—have warned can meaningfully erode returns.

ETFs in particular have been singled out as vehicles that lend themselves to overtrading, due to their broad focus, intraday pricing and heavy liquidity.

Like savvy comic-book collectors, investors of ETFs aren’t ruining the value of their holdings by taking them out and playing with them.

Some advisers may even say that the two-year average is too short a holding period.

For broad-based index funds, a strategy that dominates within the ETF space, many experts recommend holding the fund for the extremely long term, getting the benefits of compound interest and gains over time.

Even Warren Buffett, perhaps the most successful investor in history, has advised that his estate be put into index funds.

While advisers may be generally sticking to buy-and-hold strategies, ETFs are certainly used as trading vehicles as well.

So popular have they become among market speculators that of the market’s 15 most heavily traded securities, 14 of them are ETFs.

Typically, traders like ETFs because they are a liquid way to make bets on broad areas of the market—specific asset classes or sectors, for example, in a way that is less risky than selecting specific stocks.

Still, the growth in overall ETF assets—which hit $3.7 trillion globally at the end of February, according to research firm ETFGI, up from $2.9 trillion at the end of 2015—suggests many are staying put.

The SPDR S&P 500 ETF Trust SPY  the largest ETF on the market with $241.7 billion in assets, has seen inflows of nearly $30 billion over the past 12 months along.

“Some people certainly use SPY as a short-term trading vehicle, but billions of dollars are allocated to it as a long-term holding,” said Matt Bartolini, head of SPDR Americas research at SSGA, which operates the fund.

“You don’t get to $200 billion in assets without investors being sticky.”

Posted by: The Trust Advisor

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