Don't Fall for a Good Story
Some investment strategies are overhyped.
A version of this article was published in the December 2018 issue of Morningstar ETFInvestor. Download a complimentary copy of Morningstar ETFInvestor by visiting the website.
Narratives have been used to lure investors for centuries. Simple, compelling stories tap into our emotions, hijack our ability to think rationally, and persuade us to pursue investments that are unlikely to perform well. Persuasive narratives are prevalent with thematic exchange-traded funds. These funds attempt to capitalize on the growth of popular trends like cybersecurity or the spending habits of millennials, but they face several obstacles that might prevent them from delivering attractive performance.
Daniel Sotiroff does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.