The Perils and Pitfalls of ETF Investing
By J. ALEX TARQUINIO
John Bonora started using exchange-traded funds in early 2009 as a way to jump back into the rallying stock market. He bought ETFs that followed the financial and technology sectors, and they performed exactly as he’d hoped. When the bank and software stocks held by the ETFs went up, so did the ETFs’ price.
Mr. Bonora, a 31-year-old banker, presumed he’d get the same result when he bought an oil-sector ETF. But even though it was called an oil fund, it worked a little differently than he expected. To invest in the sector, the fund relied on contracts called futures; it didn’t own any oil or even any oil companies. And when the price of oil rose by 40%, the fund gained only half that, much to Mr. Bonora’s surprise and disappointment.
“It was a learning experience,” he says
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