This Week In ETFs: May 7 Edition

by on May 7, 2010

A wave of anxiety and risk aversion washed over Wall Street this week, as ongoing concerns about a credit crisis in Europe and an uncertain political landscape in the UK trumped positive jobs and manufacturing reports in the U.S. As the week came to a close, speculation continued to swirl around the “flash crash” that sent the Dow to its biggest intraday decline ever on Thursday (see Ten Shocking ETF Charts From The Flash Crash). On Friday morning, investors learned that ETFs and ETNs accounted for the majority of canceled trades as a result of what is presumed to be a technical glitch (although exchange operators are yet to make any such admission).

In these interesting times, we highlight three of the best pieces of ETF writing from around the Web over the last week:

Active ETFs Are The Next Big Growth Area at Seeking Alpha

The future of actively-managed ETFs is a divisive issue among industry experts; some think a surge in use is inevitable, while others believe that these products will never escape from the shadow of mutual funds. In a Q&A session with Shawn McNinch, head of Brown Brothers Harriman’s ETF business, Johnathan Liss probes into the potential growth of active ETFs. McNinch is–not surprisingly–bullish on the future of active ETFs. “Active ETFs are where we feel most of the new growth will take place,”he says. “There are still very few of these funds and the ones that have come to market haven’t had a chance to build up a track record yet.” McNinch also touches upon the ETF businesses of Schwab and Vanguard in the ETF space, and talks about what issuers can learn from recent successes and failures.

Who’ll Pay For Vanguard’s Free Trades? as IndexUniverse

Vanguard announced this week that it will offer commission free ETF trading to Vanguard brokerage customers, following in the footsteps of competitors iShares and Charles Schwab. While most analysts praised this development as another win for cost-conscious investors, Dave Nadig approaches the announcement with a more critical eye. So who’s really going to be paying for these free trades? The answer may surprise you.

Now Presenting, The Stock Replacement Strategy at ETF Guide

In this article, Ron DeLegge lays out his “stock replacement strategy,” which includes swapping out individual stocks for ETFs within a portfolio. For investors new to the ETF scene, this piece lays out some of the basic benefits. “The most obvious benefit of the stock replacement strategy is portfolio diversification,” writes DeLegge. “In other words, you reduce your financial risk to individual companies. Indeed, this is one of the most overlooked secrets of successful investing.”

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Disclosure: No positions at time of writing.