Return on ETF’s is just like that for index investing. There is a minor charge for running the fund so it performs slightly less than the benchmark it follows. SPDR’s (spiders) are an ETF that mimic the S&P 500, DIA (diamonds) mimic the Dow and QQQ (cubes) are the top 100 nasdaq stocks. I thought your book covered this but the way you buy an ETF is just like a stock. So for one transaction fee you buy 100 spiders and your return will be very similar to the S&P 500. You can sell it any time of the trading day and you can short it, not like a open end mutual fund.

The reason they so closely track the benchmark is that arbitrage is allowed in which the large investment firms can buy an ETF and break it apart into its pieces and sell them to make a quick profit if the market price gets too far out of line. This isn’t true of closed end funds, which sell at a discount to NAV.

I hope this helps. I really like ETF’s and believe they will become more a part of the market as time goes by.

Do you think that mutual funds should have to disclose how the vote their proxies?

I would add to the story from the financial times today. “Merrill Lynch has become the third leading investment bank to be hit by an allegation of securities fraud as part of the settlement of conflicts of interest on Wall Street. Citigroup’s Salomon Smith Barney unit and Credit Suisse First Boston will also face a finding of fraud when the final settlement document is published in the next few weeks.”

Also, “A Federal judge rejected efforts by Citigroup’s (C.N) Salomon Smith Barney, Goldman Sachs Group (GS.N) and 53 other investment banks to throw out a securities lawsuit that alleges they rigged hundreds of IPOs. Judge Shira Scheindlin of the Southern District of New York denied the majority of the motions to dismiss filed by 55 banks who underwrote the initial public offerings, and the 309 companies that issued them.”

Power and money may be what started this but if there wasn’t something to it, it would have gotten this far.

I suspect that Mr. Spitzer will appear on a ballot in the near future. 😉