John Bogle Sees Extreme ETFs As Insane

“Fund providers and registered investment advisers say that if used judiciously, extreme ETFs can help investors curb losses. In the first week of May, the Greek debt crisis triggered the most-volatile swings in U.S. stocks in more than a year. The S&P 500 dived more than 7 percent in five trading days. The ProShares Advisors LLC’s UltraShort S&P 500 ETF, which uses futures contracts and swaps to bet against the index, surged 17 percent during the same period. ‘It’s Insanity’ “If you’re not hedged these days, you’re going to get killed,” says Adam Patti, the chief executive officer of IndexIQ Advisors LLC, a firm in Rye Brook, New York, that copies hedge fund-style investing in ETFs.” Reports Edward Robinson For Bloomberg. 

“John Bogle counters that extreme ETFs may be the next financial concoction to blow up in investors’ faces. Bogle, the creator of the first index mutual fund in 1975, says these complex securities subvert the discipline of buy-and- hold investing and encourage investors to chase market-beating returns by speculating like day traders. The ProShares UltraShort S&P 500 ETF plunged 9 percent on May 10 after the stock market rallied on news that the European Union set up a bailout fund for indebted nations. “It’s insanity,” says Bogle, 81, the founder of Vanguard Group Inc. “This is a classic case of Wall Street trying to capitalize on the worst instincts of investors.” Some investment advisers say hedge fund replicators and their ilk may be twisting the innovative ETF into an overly complex and murky security that is dependent on derivatives.” Reports Edward Robinson For Bloomberg.

For the full Bloomberg story click: HERE

ETFs referenced in this article:
UltraShort S&P 500 ETF (SDS)
IShares Diversified Alternatives Trust ETF (ALT)
ProShares UltraShort 20+ Year Treasury (TBT)
United States Oil Fund, LP ETF (USO)
ProShares UltraShort Euro (EUO)
SPDR S&P 500 (SPY)
IQ Hedge Multi-Strategy Tracker ETF (QAI)
Direxion Daily Small Cap Bear 3X Shares (TZA)
Vanguard Growth ETF (VUG)
IQ CPI Inflation Hedge ETF (CPI)
ProShares UltraShort Financials (SKF)

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