ETFs to Stay Away From

With the increasing popularity of ETFs, many companies are trying to capitalize on this popularity and are coming up new sector-specific ETFs left and right. I’ve seen some recently in the home building sector and defense sector. These are both available from PowerShares. Apparently a defense sector ETF “could be used as a short-term vehicle to play geopolitical developments such as terrorist attacks.” This is not something the long-term investor saving for their retirement should be going after. If you are tired of playing the slot machine, however, this may be for you.

Then there’s the new Lux nanotech index, also from PowerShares. It is one of 8 new PowerShares (including the housing and defense ETFs) which came on the market on October 26, 2005.

Do not get caught up in the hype of ETFs and buy these sector-ETFs unless you know what you are doing. I got caught up in the technology-sector hype in 1999 and bought the TD Science & Technology mutual fund. I also bought some of the TD Health & Sciences fund. I bought them, thinking they could repeat their amazing performance in years past. How wrong I was. Here are the yearly returns for the TD Science & Technology Fund:

2004 2003 2002 2001 2000 1999
-8.2 21.4 -41.9 -38.8 -33.4 89.1

Popularity: 3% [?]

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