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February 12th, 2007

Questioning Jim Cramer On The Merits Of ETFs

Abstract:
With regard to the idea of "anti-diversification", Cramer's talking about the new wave of ETFs that are highly focused in a sector like nanotechnology or a certain area of healthcare (cancer drugs for example). No doubt he's got a point there. But, his example of 5 stocks (Microsoft, Marvell, HP, CA, Merck) versus an ETF is unclear. I suppose what Cramer is saying is that whether you choose a few tech stocks or one of the newer, highly niche sector ETFs, in both cases you're not getting diversification. That's true and I'm betting that anyone who implements in any of these two ways is consciously and purposely making a bet in that sector. The question is if you want to make a bet in a specific sector, do you go with some direct stock picks or a sector fund/ETF? To each his own, but not everyone is a pro with the resources (especially time) to make a precise decision. This is just one of the many reasons for the ETF.

Source:
seekingalpha.com

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