Right, so investors are a gullible bunch.
In fact, the vast majority of market participants are dumb as shit.
And ETF providers have figured that out. So what they’ve decided to do is take advantage of the market’s insatiable appetite for exchange traded vehicles by ripping people off.
A great example is the “The ETF Industry Exposure & Financial Services ETF,” ticker: TETF. We profiled that “miracle” of marketing a couple of months ago in a post called “If You Buy The ‘ETF ETF,’ You’ve Gone Full Retard – Here’s Why.”
You should really check that piece out, because there are a number of reasons why you probably should avoid “TETF”, but the simplest reason of all is that the fucking expense ratio is 0.64%, which makes exactly 0% sense because you could buy XLF for 14 basis points and invest in a lot of the same damn companies.
Well on Wednesday we got AdvisorShares “New Tech and Media ETF”, which trades under the ticker “FNG.”
Now first of all, the ticker is a rather blatant attempt to lure investors by promising exposure to the most recognizable acronym in the world. And what’s especially silly about that is that the question any reasonable person would immediately ask is this: “why wouldn’t I just by FANG stocks?”
That question becomes even more relevant when you have a look at FNG’s expense ratio, which is a whopping 0.85%:
Of course AdvisorShares isn’t going to come out and tell you that they’re charging you 85bps to put your money in stocks you could just buy yourself.
No, they’ll justify the fee by explaining how their “active” strategy will be nimble enough to “evolve” with the market. Here’s a fun passage from the “Why Invest In FNG” portion of the ETF’s official site:
Before the FANG acronym became apropos, there were the Four Horsemen (Microsoft, Intel, Dell and Cisco), and long prior to that came the Nifty Fifty. Inevitably, if history provides any guide, new companies will emerge to assume the role of market leaders. Whether that evolves in months, years or decades, the actively managed ETF’s investment process is designed to identify these new constituents and seeks to maintain their performance within the portfolio. The actively managed aspect of FNG allows for evolution and relevance, as opposed to the constraints and staleness that can follow index-based ETFs.
Right. So it could “months”, “years”, or even “decades” before they have to “actively” do anything, but rest assured they’ll be on top of things when the “evolution” starts.
But wait, it gets (immeasurably) better.
When asked by CNBC whether his company might have effectively top ticked the market by launching “FNG”, AdvisorShares CEO Noah Hamman offered this reassuring assessment:
I hope not.
That said, Hamman explained that even if he did just ring a bell at the top, there’s a silver lining:
Because we launched it as an ETF, you get all the benefits of the ETF by its exposure, but because it’s diversified in the ETF, it’s a great way to hedge. Obviously, you’d need to short the ETF to do that, but it’s an option.
There you go.
You can now pay more than four times what it costs to invest in QQQ to own “FNG”, and if, in doing so, you unwittingly sow the seeds of tech’s demise, you can always turn around and short the fucker.
— Walter White (@heisenbergrpt) July 13, 2017
Update: Noah isn’t happy…