Friday 26 February 2010

Book Review: ETF Strategies and Tactics by Laurence Rosenberg, Neal Weintraub and Andrew Hyman

This book is betwixt and between audiences. It presents complicated trading strategies at such a simple level, that it is hard to imagine how it could be useful to either neophyte or expert. The neophyte may get a general understanding of what is possible but will not learn enough detail of how to apply the suggested methods to have any hope of doing it successfully. The expert will already know this stuff from applying the methods to regular stocks and futures trading to need any guidance provided by this book.

The first half of the book defines and describes ETFs - how they differ from mutual funds, their structure and regulatory framework, their indices, their categories. The second part of the book, to which the "Strategies and Tactics" part of the title applies, deals with short-selling, options trading, market timing, technical analysis, financial ratio analysis. All of it has to with speculative trading and none to do with portfolio construction, asset allocation, rebalancing, correlation and diversification for long term investors that I would have expected to see occupy a major part of the content.

The book inevitably suffers from the reality that it was written in 2007 and has been rendered fairly significantly out of date by the explosion of ETFs when it lists the range and breadth of ETFs currently available. Strangely, given its speculative trading focus, there is almost no mention of leveraged and inverse ETFs, which had already appeared on the scene at that time (all I found was one paragraph on page 155). There isn't even an entry in the book's index for leverage or inverse ETFs. The authors would have been better off giving links to websites where one can obtain current lists of ETFs (one of my favorites for a fairly complete and quick way to find what is available with links to the actual provider websites for details is Stock Encyclopedia).

A final complaint about an inaccuracy that I have seen repeated elsewhere .... on page 242 the book says the first ETF launched (in 1993) was the SPDR ( they mean the famous Spider, symbol SPY). Well, I hate to break it to them but it was not the first, or even the first successful ETF (though it is the biggest by far). The Canadian TIPS 35 (speaking of which, I wish they would bring that one back with its MER of only 0.04%) preceded SPY by several years (see The Development and Evolution of ETFs). TIPS 35, launched in March 1990, was the first successful ETF, till it got merged into what is now the TSX60 ETF (XIU) in March 2000 in a deal with Barclays, but even it wasn't the first. According to the excellent Atkinson book The New Investment Frontier III (see my review) the honour goes to an unsuccessful extinct animal called SuperUnits and SuperShares.

An ironic quote from the book: "Good luck in your ETF trading." Indeed, if speculative trading with ETFs is what you decide to do, I wish you luck too.

My rating: 1 out of 5 stars.

Thank you to McGraw Hill for providing a review copy.

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