Your investments should be simple. There are thousands of employees at banks and fund companies that are dedicated to turning out new financial products to take advantage of whatever the current trend is, but those products usually are derivatives of some other security or index. The added complexity of the products just increases the odds that they won’t perform as intended when expected. (Inverse or leveraged ETFs are a case in point)
Keep the complexity out of your portfolio.
Investors need to remember that fund houses are there to sell you funds, not to make you prosper. The same with those seemingly helpful experts from the fund shops who impart their “fund tips” in the weekend papers. They know that people like to chase what’s hot and avoid what’s not. So those are the predilections they unashamedly (and indeed understandably) appeal to.
A new study by Research Affiliates, Chasing Performance with ETFs, serves as a reminder that what the industry wants to sell you it often isn’t in your interests to buy. ETFs are the investment du jour — demand continues to soar — so, commercially, it makes perfect sense for fund providers to keep churning out new and exciting ETFs to appeal to every taste. But, the researchers found, there’s one factor more than any other which governs the types of fund that are launched, and that’s recent strong performance.