A Great Reminder Of Why Exchange Traded Funds Can Be A Rip-Off

money cash

Photo: AP Images

We just got back from spending some time at Bloomberg Portfolio Manager Mash-Up Conference this afternoon. On a panel focused on alternative assets, Frank Holmes, CIO at U.S. Global Investors, made a great point about ETFs.

It’s one we’ve heard before, but most individual investors still haven’t caught on: when you buy ETFs or ETNs, particularly ones tracking less liquid assets, you can end up buying at values that are higher and selling at values that are lower than the actual market prices for the underlying assets.

Due to market volatility and the way exchanged traded products are priced for individual investors, the price you pay when you buy can be as much as a per cent more than the same assets are valued at on the market and the price you get when you sell can be just as much less.

Combine this structural problem with the fact that individual investors too often play the losers’ game of buying and selling during big market swings when volatility is high and the problem is compounded.

So next time you’re thinking about adding to you Russian metals and mining exposure, remember that even an exchange traded product with no management fees can come with costs.

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.