Burton Malkiel’s Contradictory Advice
Burton Malkiel’s brilliant book A Random Walk Down Wall Street has, over the years, convinced legions of investors the wisdom of settling for average returns by investing passively through broad-market index funds. So, it is with some sadness that one notes that Prof. Malkiel, who is also the chief investment officer of the China-focused indexing firm AlphaShares (Claymore Investments’ China ETF (TSX: CHI) owns the Guggenheim China All-Cap ETF (YAO), which tracks the AlphaShares China All-Cap Index) , is now recommending — surprise! surprise! — investors add more China to their portfolios. In a recent interview with IndexUniverse.com, Prof. Malkiel maintains that he prefers broad-markets index funds:
Well, you probably know me as someone who loves the broadest-possible ETFs. I don’t believe that people can time and I don’t believe that people can get into exactly the right sectors.
So far, so good. It’s the Prof. Malkiel we knew or thought we did. But now, he has modified his tune a little bit. In response to a question on whether investors who don’t like the way China is weighted in an index such as the Vanguard Total World Stock Market ETF (VT) should augment it with a China-specific ETF, the good Professor answers in the affirmative:
Yes, exactly. That’s how I’d use the specific ones. I don’t say pick China because China is going to do better than the U.S. over the next six months. I have no idea. I’m still a “random walker.” But I do think a broad portfolio needs more China.
But why stop with China. Smartphones are pretty hot these days. Why not add the First Trust NASDAQ CEA Smartphone ETF (FONE)? (I’m not making this up. I Googled for a smartphone ETF on a lark and it turns out such a beast exists already.) Or any other sector that is experiencing tremendous growth for that matter?