ETFs Are Not Meant For Casual Investors; Here's Why

Since their introduction in 1993, Exchange-Traded Funds (ETFs) have had a tremendous rise. Until a decade ago, the ETF market held $230 billion in assets under management (AUM), and now it has grown to over $2 trillion majorly fueled by investments from retail investors.

However, according to Robert "Bob" Olstein, chairman and CIO of Olstein Capital Management, ETFs are not a product for casual investors. Olstein will feature on this week's edition of Wall Street Week. In this excerpt from that interview Olstein explains his perspective.

Advisors Should Research Before Buying ETFs

"ETF by sponsors, okay? And it's not every ETF. They are not doing research on the stocks," Olstein said. "So, if an advisor buys it, okay? Whether it is a China ETF or whatever it is, he better do his own research."

For Sophisticated Investors, Not General Public

Olstein explained the inherent risks in ETF, saying, "Look, this is a stock that trades. We have had a little bit of a warning in the May flash crash, okay? Don't forget, this is a stock and there are stocks within them and what I am saying is, unless you are doing the research on the stocks within them, you are taking a risk. And if illiquidity comes..."

He continued, "Look, the sponsors say they are going to buy things back. But when they issue shares and ETFs, that's not the shares outstanding. ETFs are for sophisticated investors...who understand. They are not for the general public, they are not for advisors. If they are going to buy the S&P index fund, buy the fund. Do not buy the ETF, because you don't know where it's going to trade."