PM Mash-Up: Bogle Calls ETFs ‘Speculation’ and ‘Marketing’

PM Mash-Up: Bogle Calls ETFs ‘Speculation’ and ‘Marketing’

Vanguard's John Bogle speaks boldly about his opinion on ETFs Thursday.

During Bloomberg’s Portfolio Manager Mash-Up in New York Thursday, John Bogle, founder of the Vanguard Group, told portfolio managers he was skeptical of the way ETFs are being used, calling the structure “marketing” and “speculation.” Vanguard itself runs 64 ETFs.

“What must be obvious to everyone in this room is that ETFs are the best marketing innovation in the 21st century,” Bogle said. “The question we should be looking at is, are ETFs the greatest investing innovation in this century. And the evidence is overpowering that they are not.”

For one, they’re traded more, with an average turnover of 300 percent, according to Bogle. But it’s not clear whether that’s new money coming in. “It’s speculation.”

The other problem, as Bogle sees it, is that there are so many ETFs popping up out there, and many of them are just marketing. As of Jan. 2012, there were 1,191 ETFs totaling $1.139 trillion, according to State Street. They’ll turn any hot product into an ETF, Bogle said. “‘I like something with triple leverage.’ ‘Fabulous, here it is.’” It reminds me of this “we can pickle that” sketch (below) from IFC’s Portlandia, where the characters will take anything, even a used Band-Aid, and pickle it.

BlackRock, in particular, is guilty of cranking out ETFs, Bogle noted, with 19 new ETFs and a total of 246 ETFs. The firm is “making a muddy pond even muddier,” he said.

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