The ETF Industry Needs to Wake Up

Hello ETF industry!?! Are you out there? This is a wake up call from a supporter and fan of ETFs. If you haven’t noticed lately your industry is being targeted, or some would say tested, by academics and journalists.

That’s not necessarily a bad thing though, as ETFs are about as transparent as they come. No, the bad part about these tests are that there is no single consistent and visible ETF voice to respond to all the noise. Sure there are a lot of ETF sponsors willing to talk individually about the latest ETF attack, but does it benefit the industry to have 40 plus voices jumbling through their version of the correct answer? I think not.

Perform a google search on the Kauffman report and you’ll find countless statements and interviews with ETF sponsors that the Kauffman report is flawed but then the details come and the answers are disjointed. (It doesn’t have to be this way, check out Index Universe or ETF Trends for clear direct answers, for example.)

Yesterday, I watched journalist Herb Greenberg talk about the Kauffman Report again on CNBC and comment that the ETF industry has not formally responded to that report. Who is Herb expecting to respond? He assumes there is a visible and consistent voice for the ETF industry, not unlike the Mutual Fund industry has with the ICI. Oh, the ETF industry does have a committee on the ICI you say? Where are they on this issue? Haven’t heard anything, have you? I suspect the ICI would be just as quiet if the very nature of mutual funds were questioned repeatedly in print and on television, don’t you?

FLASH—A quick check of the ICI website does not list any info about the Kauffman Report in the latest news or press room areas of the site. Instead you must use the search function on the site, type in ETFs and then a search brings up a response to the report dated today, Nov 11, 2010, (better late than never) and categorized as a “speech or commentary.” In other words, this is buried on the site as of November 11, 2010 at 3:34PM. Where’s the industry leadership here?

ETF industry, you are big enough for an organization that supports your cause! Yes, you’re less than a trillion in assets, whereas mutual funds are over 11 trillion, but don’t let that stop you. You can’t keep taking on attacks — i.e. Kauffman Report, ETF Implosion, Dark Side of ETFs, NYSE Trading Glitch on SPY, Flash Crash — individually. The industry and the value it provides investors is too important to let every sponsor ham and egg it on the issue of the day and thus water down the consistent responses that should be taking place. Perhaps if the Kauffman Foundation or Herb Greenberg knew there was an industry advocacy organization, some of the misunderstandings would have been headed off before the public was exposed to them. Wake up ETF industry! United you will stand and divided you may fall.