Michael,

Thank you for the article.

I share your concern about the potential misuse of ETFs, and particularly managed ETF portfolios that focus on high-turnover tactical strategies. As you noted, the "ETF effect" causes correlations to collapse once an asset becomes liquid and tradable. In the meantime, security selection is neglected, creating opportunities for bottom-up research.

The ETF portfolio managers you describe are quick to assert that they add value through tactical asset allocation. Many of them make fun of mutual funds for high fees, poor performance, and closet-indexing. Many of them deride active management of all types--except for their own fee, of course.

ETFs can be a great tool, due to their low costs, high transparency, and tax efficiency. But like anything else, they are prone to abuse.

Thanks again,
Rob

Robert J. Martorana, CFA
Portfolio Manager, Right Blend Investing, LLC