I also called today’s blog post the same title but we’ve got different bits over here.

First up is a very odd and seemingly uninformed article on Seeking Alpha called Why ETFs Are a Scam [1]. The author talks about not being able to know what is in an ETF, how they lag their benchmarks and why closed end funds are better. I’m not going to rebut the article, for that you can read this from IndexUniverse [2]. I will say that the only way his assertions can be woven into a cohesive argument is if all of the ETF providers lie about everything, not that I would agree with him in that instance either.

That he doesn’t say they are all lying and is obviously wrong on other points brings up something important. There is a lot of bad information out there. Some of it may be driven by bad intentions and some driven by good intentions but it should remind us of the trust but verify saying especially if something you read or hear is compelling enough for you to act on in your portfolio.

Frankly I don’t know why Seeking Alpha published the article. He’s not drawing the wrong conclusion, he is instead factually incorrect.

Next up was a commentary by Randall Forsyth [3] at Barron’s about closed end funds and how many of them are now trading at enormous premiums over their NAVs. He mentions quite a few funds and they seem to be from various parts of the market and have different plausible reasons to explain the huge premium.

He writes a fair bit about the Templeton Russia Fund (NYSE: TRF [4]) which when I looked last night on ETFconnect was trading at an 82% premium. He says this is especially crazy given that anyone wanting Russia can just buy the Market Vectors Russia ETF (NYSE: RSX [5]). Let me just say that under no circumstance am I saying anyone should pay a premium of more than a couple percent for a closed end fund (if I thought a particular CEF was the single best proxy for something and the premium was 2-3% I would not hesitate to buy).

That being said I know from past experiences there are some very sophisticated strategies involving CEFs combined with other products or combined with other CEFs built around changes, in either direction, in the premium or discount of closed end funds. This is an area well beyond what I know about portfolio construction so I can’t tell you why, how or what other than to say that often with closed end funds there is more than meets the eye. This is a case of knowing what I don’t know and I do not know about advanced CEF strategies.

Last up is a book review by Burton Malkiel [6] about Justin Fox’ The Myth Of The Rational Market. The book tackles how much meat on the bone there is or isn’t to the efficient market hypothesis. I’ve never been a big efficient market guy, to certain extent maybe but never hardcore. It seems to be that the market is right most of the time but when it is wrong it is wrong in spectacular fashion with life-altering consequences (I would define someone having to work another five years longer than they want to because their 401k or IRA blew up as being life-altering).