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Though I generally agree that the moniker ETF is abused, it seems that Ferri tries to have his cake and eat it too.
There are two basic axes discussed here - the legal structure (and the associated mechanics to make them work), and in what constitutes an index. Ferri seems to equivocate on both.
In the Forbes piece, Ferri laments the different (non-1940 Investment Company Act) structures sold as ETFs. Yet in his book that he cites, on p. 113, he states: "An example of ETFs using a buy-and-hold strategy is Holding Company Depository Receipts (HOLDRs)." HOLDRs were grantor trusts - one of the more unusually structured exchange-traded products (ETP). So Ferri has gone down the slippery slope of considering some non-'40 Act ETPs as ETFs.
(In his Forbes piece, he seems to suggest that such "evolved" vehicles came after the 1990s. HOLDRs were introduced in Sept 1999. Minor quibble.)
My personal view is that he's largely right about being precise on structure. The problem I'm pointing out here is that he doesn't follow his own advice. I would be very clear about HOLDRs, ETNs, etc. as being fundamentally different from ETFs.
(I would also include CEFs in ETPs - or change that terminology as well. CEFs are also investment "P"roducts that are "T"raded on "E"xchanges. Perhaps something like COETs - continuously offered exchange traded, which CEFs are not.)
Regarding indexs, I'm a bit of a purist. I feel an index is a measurement of something - in the investing world, a measure of a market performance. (That market/universe may be the US equity market, small caps, European bonds, whatever, so long as it is well defined and reasonably constant.)
Ferri describes some ETFs as "non-benchmark following ETFs", saying that they track "strategy indexes". In applying the term "index" to "strategies" as well as something that can be measured, he vitiates the term. But then he turns right around and complains that this is just market speak ("SPINdexing"). Again, he's trying to have it both ways.
To an extent, he may just be trying to make the best of a bad (naming) situation. But by equivocating, by fudging on his own definitions, it seems he's not helping improve clarity.
Comments
There are two basic axes discussed here - the legal structure (and the associated mechanics to make them work), and in what constitutes an index. Ferri seems to equivocate on both.
In the Forbes piece, Ferri laments the different (non-1940 Investment Company Act) structures sold as ETFs. Yet in his book that he cites, on p. 113, he states: "An example of ETFs using a buy-and-hold strategy is Holding Company Depository Receipts (HOLDRs)." HOLDRs were grantor trusts - one of the more unusually structured exchange-traded products (ETP). So Ferri has gone down the slippery slope of considering some non-'40 Act ETPs as ETFs.
(In his Forbes piece, he seems to suggest that such "evolved" vehicles came after the 1990s. HOLDRs were introduced in Sept 1999. Minor quibble.)
My personal view is that he's largely right about being precise on structure. The problem I'm pointing out here is that he doesn't follow his own advice. I would be very clear about HOLDRs, ETNs, etc. as being fundamentally different from ETFs.
(I would also include CEFs in ETPs - or change that terminology as well. CEFs are also investment "P"roducts that are "T"raded on "E"xchanges. Perhaps something like COETs - continuously offered exchange traded, which CEFs are not.)
Regarding indexs, I'm a bit of a purist. I feel an index is a measurement of something - in the investing world, a measure of a market performance. (That market/universe may be the US equity market, small caps, European bonds, whatever, so long as it is well defined and reasonably constant.)
Ferri describes some ETFs as "non-benchmark following ETFs", saying that they track "strategy indexes". In applying the term "index" to "strategies" as well as something that can be measured, he vitiates the term. But then he turns right around and complains that this is just market speak ("SPINdexing"). Again, he's trying to have it both ways.
To an extent, he may just be trying to make the best of a bad (naming) situation. But by equivocating, by fudging on his own definitions, it seems he's not helping improve clarity.
Thank you again for your continued insights.
Take care of you and yours,
Catch