What is in your ETF?

Today’s WSJ offers a critical view on ETFs, particularly the components in these widely used investment vehicles. Since there is no official or even widely accepted definition of what constitutes a certain industry stock – be it technology, health care or even energy – investors need to look closely at what they buy. These ETFs might contain stocoks that do not really fit in the segment or the index.  The diversification benefits of ETFs diminish and investors could end up with a portfolio that is only nominally reflecting the performance of an underlying – poorly – defined benchmark. This is a problem that is common in the highly specialized index sphere – particularly in the thinly traded microcap and international equity sphere.