On the grand scene of financial innovations, the exchange-traded fund was fairly innocuous at first. It took a good 15 years of slow realization for people to figure out how disruptive they would ultimately be. ‘Exchange-traded fund’ isn’t even a very good name, since closed-end funds were also exchange-traded.
And the ETF wrapper still isn’t the ideal investment vehicle, at least for the purposes of traditional active management. For active strategies, the open-end fund structure is still superior.
I’d argue that the ETF revolution is less about ETFs and more about indexing; about how people have come to view stocks less as stocks and more as blobs of stocks.
This post was published at Mauldin Economics on OCTOBER 12, 2017.