Many economists and investment theorists have attempted to translate their academic ideas into reality by opening investment funds. But is it a good idea to invest in them?
Some, such as Dimensional Fund Advisors, have been successful. Others, such as Long-Term Capital Management, which imploded in 1998, have been massive failures.
Today, the $800 billion Exchange-Traded Fund (ETF) market is full of funds operated by renowned academics.
An ETF is an investment fund that tracks a market index. Unlike an index mutual fund, however, it’s traded on an exchange like a stock. Many ETFs are basic, tracking a standard market index such as the S&P 500 Index or MSCI EAFE Index.
But other ETFs are complex investment vehicles that track subsets of market indices, such as dividend-paying stocks. Others track housing investments or oil prices. Some get very complex, combining bullish and bearish stock bets or pools of U.S. Treasury securities.
While market research by renowned academics has certainly helped shape how investments are managed, and the actual investments these academics create have sometimes performed well, they haven’t always. They’re also extremely complex.
Before investing in an ETF, we suggest you consult a financial adviser who can help determine if it’s the right investment for you given your financial circumstances and goals.