Funds of ETFs

These so-called “funds of ETFs” are seen as a more attractive alternative to targeted-maturity or lifestyle funds, many of which hold shares of traditional open-end mutual funds. For this latter group, the result is often a double layer of fees. Although there are around 400 funds of mutual funds currently being offered, the number of funds of ETFs is much smaller, perhaps totaling a dozen. J.W. Seligman & Co. recently announced plans to roll out target-maturity and lifecycle funds made up entirely of ETFs. MetLife is following with its own ETF-based products.

It should be noted, however, that the most important attribute of any actively managed product is the underlying strategy. An asset allocation approach that has no merit will result in a poorly performing product, no matter how cheap the underlying instruments. In fact, several recently launched funds of ETFs–most notably those that use a market-timing approach–have yielded lackluster results, and more than a few have closed.