ETF Errors To Be Aware Of

There are now more than 450 exchange-traded funds (ETFs), including 75 which were launched in the first quarter of 2007 alone. ETFs are designed to be low-cost index funds, and those that track major indexes such as the S&P 500 generally do a good job. But misfires can occur when ETFs try to match more esoteric indexes like the High Growth Rate Dividend Achievers Index.

These niche indexes may have big stakes in fewer stocks or hold small companies that are harder to trade. Tracking error may result, meaning that investors are not getting the performance of the underlying index.

Another point to bear in mind is the fact that these esoteric ETFs also may be more expensive than those tracking familiar indexes.

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