Welcome to the latest installment of our weekly fund review, in which we review the past week's notable fund news and tell you what it means for Foolish investors.
Stock exchanges compete for ETF listings
As the number of new exchange-traded funds continues to rise, stock exchanges are increasingly competing for the privilege of listing them. The New York Stock Exchange, Nasdaq, and American Stock Exchange are all offering market specialists incentives to make markets in newer, less liquid ETFs, and urging sponsors to list new funds on their respective exchanges. Nasdaq has announced plans to introduce a separate market specially designed for exchange-traded funds later this year. Currently, the American Stock Exchange remains the ETF leader, with more than 300 funds listed and more than $190 billion in assets.
The intense competition for ETF listings should come as no surprise, given the potentially lucrative trading volume that many of these funds generate. However, since most of the newer ETFs focus on increasingly narrow market segments, it remains to be seen how much trading activity the newer funds will actually generate. Many of these ETFs will likely have a much smaller following than traditional general-purpose ETFs such as Spiders (AMEX:SPY), Diamonds (AMEX:DIA), or Cubes (NASDAQ:QQQQ).
No matter what exchange an ETF is listed on, remember to think big and broad when buying these investments. Avoid narrowly focused funds in favor of a more diversified fund that invests in a wide swath of the market. It'll help ensure that you not only have adequate trading liquidity, but also invest appropriately for the goals and objectives of your portfolio.
Prudential, Morningstar offer guaranteed income product
Traditionally, target-date mutual funds have focused on maximizing investors savings to prepare for retirement. When it came to actually managing those savings throughout retirement, investors were on their own. A new product from Prudential and Morningstar Associates may change that. The two firms have teamed up to combine Morningstar's asset-allocation models with a guarantee from Prudential that would allow participants to receive a guaranteed income stream during their retirement years.
Investors who participate in Prudential's GoalMaker program choose an appropriate portfolio based on their age, projected retirement date, and risk tolerance. The portfolio then uses Morningstar's asset-allocation program to adjust the asset mix, growing more conservative over time. With the added IncomeFlex benefit, participants older than 50 would automatically have a portion of their portfolio allocated for certain benefits of the plan, including a guaranteed retirement withdrawal and downside protection.
If all of this sounds like an annuity in disguise, you're partially right. This product does have many of the same features as an annuity, although Morningstar and Prudential are being careful not to market it as such. The firms are also attempting to differentiate the plan somewhat by building in some flexibility -- for example, allowing participants the option to cancel at any time, with no additional fee.
It's too early to tell whether this type of product will gain traction in the marketplace. While a guaranteed stream of income will likely appeal to many investors, annuities have gotten some bad press in the past, and investors may hesitate if they think this new product is too similar. There may also be concerns about cost, since offerings within retirement plans from insurance companies such as Prudential are typically more expensive.
If you're concerned about managing cash flow during your retirement years, this offering may be worth investigating. However, if you are confident in your abilities to handle your own retirement funds, you probably shouldn't worry about a guaranteed withdrawal benefit. It won't come free, and any extra costs you can avoid will leave your retirement savings that much larger. Just remember to thoroughly research this or any newer investment product before buying in, to help avoid difficulties when you reach retirement.
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Fool contributor Amanda Kish lives in Rochester, N.Y., and does not own shares of any of the companies or funds mentioned herein. The Fool's disclosure policy can hogtie an ETF in 15 seconds flat.
