Tuesday, August 10, 2010


The abbreviation ETF stands for exchange-traded fund. It used to mean a basket of equities making up some broad index where the annual fees charged were very low. As investors came to understand that ETFs were good, the name “ETF” began to be used for just about any type of investment.

At first it was very narrowly-focused exchange-traded funds that got in on the ETF name. It’s hard to argue that this was really an abuse of the name, though, because these funds were, in fact, exchange-traded. But they were different from the original ETFs in important ways. Firstly, they had higher fees, and secondly, they did not represent a broad index (as Preet observed recently).

For a while I tried to use the cumbersome term “low-cost broad-index ETF” to get at the original meaning of ETF, but that’s not a very catchy name.

Lately, the name ETF has been attached to index mutual funds as well. Because mutual funds aren’t exchange-traded, this is hard to justify other than with the we-will-make-more-money-using-this-misleading-name justification. As long as the general public thinks ETF=good, we can expect the use of “ETF” to expand further to apply to ever more expensive investments.

I’m officially declaring the name “ETF” dead for having any specific useful meaning. To be precise, you’ll have to use some long list of qualifiers along with “ETF” to avoid its various marketing uses.


  1. MJ, is there any ironic symbolism, given your post's message, that your post is adorned with a comment containing spam-type ad links? Dear Anon, Ooooo, I sure am gonna buy some of those products now.
    Hear, hear on your post btw.

  2. @Canadian Investor: I'm not sure whether these spammers have an automated way to get by the checks for a human doing the posting of a comment, but I have to kill off these spam comments a few times per week.

    [For other readers, the first comment on this post used to be an obvious spam before I deleted it.]

  3. Interesting- yeah, some of those mutual funds are pretending to be ETF's.

    Someone needs to go and set everyone straight and tell mutual funds to back off and get back on their turf.


  4. @Young: I'm not sure what the answer is. Maybe banks are going to start offering ETF chequing accounts and ETF safe deposit boxes. The term "ETF" will just be synonymous with "good".

  5. Excellent post MJ.

    When do you think a Buffett ETF or a Soros ETF is going to hit the market - for investors to mirror their holdings?


  6. @Financial Cents: I don't know when a Buffett or Soros tracking ETF will hit the market, but there is a good chance it will be a mutual fund :-)