“Since April,” he points out, “the best performing mar-
kets have been Brazil, Russia, India and China. In three
months, China was up 20%.”
ETFs are famed for being liquid, low cost, tax efficient
and transparent. That they also can be traded at any time
during the day is perhaps their most appealing feature.
“E TFs give you the ability to capitalize on an investment
class, segment or theme more quickly than you could in the
past,” Bergman notes. The advantage of all-day trading “is
where they really make a difference.”
For instance, eight years ago, when a plane crashed into
a New York City high-rise building, the event set off fears
that it was another terrorist attack; and the market plunged.
Bergman saw opportunity. “I was able to go in [quickly]
and buy a particular ETF that I wanted, which was down
3–5%. Within only 15 minutes, they confirmed that it was
a private plane piloted by a Yankees pitcher,” he recalls. “So
there are dislocations from time to time that make being
able to trade during the day a big advantage.”
Bergman made that notable invest-
ment around the time he was devel-
oping his core/satellite ETF strategy.
As a senior managing director at Bear
Stearns, he was doing a deep dive into
ETF research, testing funds in his per-
sonal accounts and determining which
types of E TFs made the most sense and
which to avoid.
“Properly investing with ETFs re-
quires research, understanding and vigi-
lance,” the FA stresses. “If the captain
of the ship doesn’t know what they’re
doing, ETFs are worth nothing.”
He pans advisors who, instead of
focusing on long-term, broad-based
allocation, trade ETFs too often sim-
ply because it’s easy.
“Greed, fear and gambling seem
to overtake a lot of investors,” he says.
“They’re turning over the portfolio more often than they [ordinarily]
would based on their thoughts about
a particular sector.”
The savvy Bergman, who got himself
Series 7-registered as a college senior
cold-calling afternoons for an independent brokerage, is a sharp critic of the ever-expanding
ETF world of products. There are now about 1,500 funds,
as of July of this year.
“ETFs have come a long way; and because of that, if
you’re not educated, there’s more and more confusion about
what they are,” says Bergman, who, after graduating from
the State University of New York at Buffalo with a B.S. in
business administration-concentration in finance, worked at
Janney Montgomery Scott for three years before joining Bear
Stearns. He believes firmly that there are far too many ETFs,
far too many providers and not nearly enough transparency.
“Unless you can really dig down and get the providers
in [to see you], for the most part you’re bombarded with
a smorgasbord where everything looks good until you
taste it. They’re trying to come out with an ETF for every
single asset class. A lot of ETFs aren’t good. A lot of ETFs
overlap. Unless you read the fine print and meet with the
managers, it’s a black hole.”
What Bergman Likes
For the first time in four years, contrarian investor Shelley Bergman, senior portfolio manager of The Bergman
Group at Morgan Stanley, in New York City, has added
financials to his ETF holdings.
“Most of the financial stocks have underperformed
for the last two to three years, but we feel there’s going to be a major
consolidation among banks in this country,” he says. “Though we don’t
see interest rates going up anytime soon, we believe that some of the
larger banks will begin to lend again. The economy is improving. Net
interest margins will come back eventually.”
Another top Bergman pick is the commodity sector, in which he re-
cently bumped up his ETF position.
“We like this sector at a time when everybody is telling you there’s
no inflation and you shouldn’t own a lot of commodities. But we like
them because they’re too cheap. We love sugar and wheat and corn
[etc.]. The world has to continue to eat, and these prices are at five-,
15-, 20-year lows.”
But, the advisor emphasizes, investing in broad-based commodity
funds is the route to success.
“Many commodity ETFs will be 30% top-heavy oil and gas. So if
corn, wheat, gold, silver [and other commodities] go up, and gas and
oil stay flat or go down, you’ll lose money. But if you buy a broad-based
ETF that has only 2% or 3% in each commodity, if oil and gas go down,
you’ll probably make a lot of money.” —JWR