The Especially Concentrated Funds That Offer Too Much of a Good Thing

A Wall Street Journal article examines new ETFs that concentrate investments in leading stocks by exploiting a regulatory loophole, warning investors of the risks.

A Wall Street Journal article by Jason Zweig, published in Globes, examines a new type of ETF that concentrates an even larger portion of investors' money in leading stocks by exploiting a regulatory loophole. Funds like State Street's XLKM and VanEck's TruSector invest part of their assets in other ETFs to bypass traditional concentration limits. In practice, 55% of XLKM's assets are invested in just three stocks: Nvidia, Apple, and Microsoft. The article notes that these funds are expected to perform well in a rising market and poorly in a falling market, warning of a history of investors chasing high returns and locking in losses. Experts quoted say the funds are not a standalone investment solution.

The Especially Concentrated Funds That Offer Too Much of a Good Thing