About the Editor
Ben Johnson, CFA, is director of global ETF research for Morningstar. Before assuming his current role in 2012, he was director of ETF research for Europe and Asia. He also previously served as a senior equity analyst, covering the agriculture and chemicals industries. Before joining Morningstar in 2006, he worked as a financial advisor for Morgan Stanley.

Johnson holds a bachelor's degree in economics from the University of Wisconsin. He also holds the Chartered Financial Analyst® designation. In 2015, Fund Directions and Fund Action named Johnson among the 2015 Rising Stars of Mutual Funds.

Investment Strategy
Morningstar ETFInvestor scans the globe for value and improving fundamentals across virtually all asset classes. Editor Ben Johnson draws upon academic and practitioner research — including Morningstar's sizeable bench of stock, bond and fund analysts — to find reliable drivers of outperformance.

Morningstar ETFInvestor features two real-money portfolios.

The ETF Income Portfolio assembles a high-quality collection of income-generating ETFs with the goal of earning 5% in excess of the 30-day T-bill rate over a full business cycle. The portfolio adheres to a benchmark-agnostic strategy in its search for absolute returns.

The ETF Global Asset Allocation Portfolio, on the other hand, is more benchmark sensitive. It seeks undervalued asset classes with improving fundamentals. The strategy seeks to beat the 60/40 MSCI ACWI/Barclays US Aggregate benchmark over a full business cycle, with the least risk possible.

Nov 24, 2015
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Ben Johnson, CFA,
Director, Global ETF Research and Editor
Ben Johnson, CFA, is director of global ETF research for Morningstar. Before assuming his current role in 2012, he was director of ETF research for Europe and Asia. He also previously served
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ETFInvestor Weekly Update - November 23, 2015

A Devilishly Good Read

I just finished reading Jason Zweig’s The Devil’s Financial Dictionary [1] and wow it is good. I can confidently say that it is the only finance/investing book that has made me laugh out loud in public. Zweig’s wit is razor-sharp and he checked his sense of reverence at the door when he sat down to pen this pull-no-punches assault on indecipherable Wall Street jargon from A to Z.

The book isn’t just humorous, it is also very well-researched. As much as some of Zweig’s fictional “flights of fancy” made me chuckle, his etymological homework gave me a greater appreciation for the origins and evolution of finance-speak (his definitions “broker” and “invest” are good examples).

I think this is a must-read for investors of all stripes.

Here, I’ve included a definition from Zweig’s book that is very relevant to this audience:

ETF, n. Acronym for “exchange-traded fund”; contrary to popular belief, not an acronym for “extremely tradable fund.” ETFs (and their siblings ETNs, or “exchange-traded notes”) track the returns of an index, typically at a very low cost. You could buy a handful of broadly diversified ETFs, hold them undisturbed for decades, and end up wealthy. But that would be boring, so instead many investors and financial advisors trade ETFs like mad. Thus, the investors enrich their brokers, the financial advisors enrich themselves, and the markets do what they have always done and always will: transfer wealth from those who trade to those who wait.

Incapable of leaving well enough alone, Wall Street has taken the good idea of ETFs and complicated them until many have become a bad idea. Increasingly, ETFs trading thousands of times a day own assets that might not trade at all that day. And you can buy inverse ETFs, which move in the opposite direction of the daily return of the index they are tied to, and even leveraged inverse ETFs, which move twice or triple the opposite of an index. A triple-leveraged inverse ETF, for instance, would gain 3 percent on a day when its underlying index loses 1 percent and lose 3 percent on a day when the index gains 1 percent. Such funds are suitable only for the kind of person who might enjoy getting orthopedic surgery without anesthesia.

“We think this ETF is extremely safe,” said Karen Little, a partner at the wealth-management firm of Flynt, Sparks & Asch in Las Vegas, Nevada. “It’s designed to go up when small stocks with high dividends trading in Tanzania go down, and to go down when they go up. In fact, it will move twice as much as they do every day! So it won’t behave anything like US stocks or bonds, and that will make your overall portfolio safer.”

I love it! Zweig’s definition reminds me of the “beautiful shotgun” analogy that Vanguard founder and former CEO Jack Bogle used to describe ETFs in his The Little Book of Common Sense Investing [2]:

I can't help likening the ETF to the renowned Purdey shotgun, supposedly the world's best. It's great for big-game hunting. But it's also excellent for suicide.

Many ETFs are absolutely wonderful, low-cost, tax-efficient tools. When used appropriately (buy, hold, and periodically re-balance) they can help you to build wealth over time. When chosen poorly (think of Zweig’s fictitious leveraged Tanzanian dividend fund, for example) or wielded carelessly (i.e. traded frequently) you could very well wind up shooting yourself in the foot—or worse!

I won’t be publishing an update later this week, as I’ll be off celebrating Thanksgiving with family. In the spirit of the holiday, I want to thank you all for being loyal and engaged subscribers. My interactions with all of you are part of the wealth that I’ll be celebrating this week—wealth, that is, as Zweig defines it:

WEALTH, n. A quality existing exclusively in the soul and mind that most investors erroneously believe can be measured best by the amount of money in their bank and brokerage accounts.



[1] Zweig, Jason. The Devil's Financial Dictionary. New York: PublicAffairs, 2015.

[2] Bogle, John C. The Little Book of Common Sense Investing. New Jersey: John Wiley & Sons, Inc. 2007.

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