Last week I wrote about the different selection methods (sampling vs. representation) for index funds and concluded that, while the 2 are similiar, they are not identical.
That seems like a small differentiator when compared to some of the newer sector ETFs out there and how they doing in Alternative Investments.
I’ve been following how the new Commodity ETFs are doing (not very well!) and the new MLP ETF, Alerion’s ETF for the MLP sector (MLP = Master Limited Partnership), AMLP.
I am a firm believer in not being a Financial Guinea Pig, so while these were captivating sectors to consider for Alternative Investments, I stayed on the sideline and watched.
If the Commodities are the new kids on the block, then the Master Limited Partnership ETF is the baby just brought home, with a launch date of just this last August.
And the verdict so far?
Not so good. No really, not so good.
Caveat Emptor definitely still applies to new Sector ETFs coming out that have yet to be tested.
There’s alot of interest in Alternative Investments right now.
It comes down to each individual client: Does it intersect with their goals, their risk tolerance, their timeframes, and their expectations?
If it hasn’t been tested by time, there’s an added layer of risk because there isn’t any performance data to work with regarding how the ETF works against the overall market (e.g. commodities or MLPs) it represents.
Like I said, I will pass on being the Guinea Pig.
(Disclosure: I am a Fee-Only Financial Planner. Here’s my website.)