The soon to be infamous Kauffman Foundation’s report that takes aim at ETFs, has succeeded like a good work of fiction. The report’s sensationalized claims — carefully outlined in a breathless release — have attracted the attention of the investment industry. However, like the DaVinci Code, a lot of the conclusions are based on incorrect information that is nonetheless entertaining.
As a former ETF Sponsor and now third party industry participant, I was surprised at both the lack of technical proficiency about ETFs and the lack of perspective on the ETF industry’s size relative to overall markets, as I read the report. There are a lot of glaring errors in the analysis, to the point that the report seemed destined to be a work of fiction specifically geared to shake confidence in ETFs. Clearly the report’s authors did not spend much time getting the details correct as they sped to their conclusions.
One of my favorite debunkers of ETF myths is Matt Hougan, Global Head of Editorial for Index Universe. He successfully debunked Herb Greenberg’s ETF implosion story earlier this year and now takes the Kaufman report head on in a piece he wrote today. He outlines many of the primary details that were wrong or not fully considered in the report. Check it out here.
In the end I suspect the success ETFs are having is being used by the Kaufman Foundation to generate publicity. My hope is that the conclusions of this report will be publicly vetted by industry experts — ICI perhaps? — and the resulting conclusions will be as high profile as the current allegations.
Finally, as I have written before on the site, the ETF industry needs to create a public advocacy organization that is visible and vocal. The Kaufman Report is the perfect illustration of a situation where a singular industry voice to respond to allegations would be useful to the industry and to the investment community.