3 Things You Should Know About ETFs

As The Juice continues focusing on retirement in 2024, ETFs often enter the discussion. 

We discuss ETFs as investment ideas and will continue to do so as this ongoing series evolves. But we also cover some basics and key ins and outs of ETFs, including recent installments on how to research ETFs and how to avoid being overweight huge tech names via ETFs. Before you hit the buy button and regularly invest, you need a basic understanding of how ETFs work. 

In today’s Juice, we look at some data from Trackinsight, not to be confused with Trackstar, our proprietary sentiment indicator. While Trackstar looks at the tickers investors search for most across our 100+ financial media partners, Trackinsight collects tons of data on ETFs. 

Let’s tie the two pools of knowledge together to detail three things you should know about ETFs. 

#1 — The SPDR S&P 500 ETF (SPY) has nearly $500 billion in assets under management, nearing the size of the economies of Thailand, Egypt, Nigeria, or Singapore. That’s according to Trackinsight. 

So, no surprise that SPY is the ETFs financial advisors — and everyday investors — search for most. 

At The Juice, we think SPY is just about all you need. It’s a great start — and end — for all types of investors. 

Our sister newsletter, The Spill, agrees. Just last week, The Spill gave SPY a 10 out of 10 rating:

You can’t go wrong using the SPY ETF. 

It’s a core holding of most investors’ portfolios for a reason.

Investors will park money in the ETF while looking for their next big idea.

Large funds will use it because it’s so liquid it can absorb their large positions.

Plus, you can hold the ETF and trade options against your position using strategies like covered calls, to boost your overall performance.

#2 — 73% of global money managers, with more than $900 million in ETF assets, say they’re interested in investing in active ETFs. 

The Juice has written a lot about active ETFs. They’re exploding in numbers and popularity. So, it’s not shocking that money managers have an interest. Certainly, their clients are asking about active and thematic ETFs. 

But there’s something you should know. A word of caution. 

You might see stats like this one, via ETF.com: “Between June 2022 and June 2023, 57% of active ETFs outperformed their passive counterparts, up from 43% in 2022.” 

When you see that you could think, damn active ETFs perform better than passive ones. Not the case. Overall, it ebbs and flows. But this is one situation where you can’t look at the big picture. You have to drill down to the specific. 

Part of the beauty of ETF investing — particularly with passive ETFs — is that they take the guesswork out of the process. You don’t have to pick stocks. You can invest in the broad stock market or broad, but specific sectors in ETFs that shadow the performance of indexes. 

When you delve into active ETFs, it’s almost as if you’re stock picking. You’re essentially ETF picking without the organized guidance of the underlying index. You’re not just buying a market cap-weighted or equally-weighted basket of the 500 stocks that make up the S&P 500. Instead, you’re making a bet that a fund manager can game an index or pure stock pick around a theme and beat the market. To some extent, you gotta get lucky. 

#3 — 25% of global money managers keep an ETF allocation of 10% to 30%. A large number allocate closer to 60%. However, another sizable chunk is lukewarm on ETFs, with 24% of these people saying ETFs do not provide the “control and customization” of direct stock ownership. 

Control and customization. Let’s consider this standpoint. 

If you look at the top of this email, you’ll see the five ETFs financial pros have been searching for most. Three of them are complicated ETF products that have about zero business in the portfolio of most retail investors. We explain why here. 

By all means if you love a particular stock, but that stock. But, to say that the average Joe (present company included) can control and customize their way to an individual stock portfolio that’s equipped to generate outsized returns over the long haul is pretty crazy. To do this — to be diversified — you probably need ETFs. 

The Bottom Line: If someone asks us what are the three things I should know about ETFs, we would hand them a copy of today’s Juice. 

Stick with SPY. Be wary of the active ETF hype. Stock picking is hard. 

And it’s not just us. Downtown Josh Brown, who you might have seen on CNBC, summed it up nicely on LinkedIn the other day. Today, he provides The Juice’s bottom line —

Hey kids, the Holy Grail of Investing is actually market-cap weighted index funds and lose your brokerage password. 

There, I just saved you twenty years of bullshit and aggravation. 

When you turn 45, call us and we’ll show you all the stuff that keeps you rich.

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