Are the Risks of Exchange-Traded Funds
Being Downplayed?                                               Page 2

Presently many of the ETFs that trade on the American Stock Exchange have three ticker symbols: one shows the trading value, another shows the estimated NAV of the underlying stocks, and the third shows the official NAV of the underlying stocks at the previous day's close.

Unfortunately, this information is presently only available for United States-based ETFs. The same information is not readily available to most retail investors trading in low-volume international funds. With the recent exposure to this information, however, look for this information to soon appear.

Gus Fleites, director of ETFs at State Street Global Advisors, agreed that price variation can be significant for some funds and may not always be explained clearly. Regarding ETFs that track international-stock indexes or lightly traded U.S. industry sectors, he noted, "Retail investors, beware.."

Fund specialists, including Mr. Bullard, have praised ETFs not just for allowing intra-day trading, but also for their ability to feature lower operating expenses and greater tax efficiency. Expect the transparency of trading/NAV differentials to increasingly fall into the public domain. Traders, not funds, gain from the premiums/ discounts.

With Barclays already voluntarily posting the information, it seems likely the problem will soon to be largely resolved. Aside from increased transparency cutting down the gap, one expects that the increased attention to the issue will also help narrow the premiums that are exploited by traders. In the meantime, let the buyer beware.