With a $2.2 trillion market cap, IBX stock is one of the most valuable ETFs in the U.S. But its recent performance has raised concerns about its ability to deliver returns and its ability be a viable investment.
IBX has a track record of performance and profitability problems and investors should be wary of investing in it, says Jason Szekely, an associate professor at Harvard Business School and a prominent investor in the ETFs.
The fund’s management team has yet to disclose how it plans to handle any potential volatility.
“I would caution against the IBX ETF because of the potential for volatility and the risk of having too much money invested,” he says.
IBx’s track record is not the only issue investors should keep in mind when considering the ETF.
Investors are also concerned about IBX’s liquidity.
The ETF is heavily invested in stocks that are not yet in the market, and they don’t know when they will be.
In the past year, the fund has invested more than $200 billion in stocks in which there was no immediate trading, according to research firm Morningstar.
That’s a huge amount of money to be sitting on and is not an indicator that the ETF will deliver a return, says Peter Buitelaar, a portfolio manager with Morningstar who specializes in equities.
“You’re not sure if the underlying stocks are going to rise or fall,” he adds.
And IBX stocks are not a good place to hold equities because they are volatile.
“The ETFs don’t have the liquidity of the S&P 500,” he explains.
“It’s not a safe bet.”
To better understand how IBX could fail, Szeklin points to the fund’s performance in the first quarter of 2018.
The index fell more than 3% during the quarter, and IBX shares lost more than 4%.
Szecklen says investors should look at the fund as a place to invest for the long term, not just for the short term.
“We are investing in the long-term,” he tells WSJ.
“What the fund is doing right now is providing a long-range, long-duration return to the market.”
He says the fund will also make it easier for investors to understand the ETF’s underlying business.
The IBX team is currently working on an updated version of its portfolio, which includes a mix of stocks that have already been in the index and new stocks that aren’t yet in there.
For now, the team is focused on updating its portfolio and will announce its strategy in the next few months, Sseklin says.
For investors who want to take advantage of this opportunity, the new fund is available to subscribe to at a discount.
The new fund has a price of just 0.06 cents a share, or about $4.65.
The price is below the market average of 0.15 cents a piece, and investors can sign up for a three-month trial to try it out.
“There are plenty of ETFs out there, but this is the best one,” says Ssekely.
“If you are looking for a long term investment, you will have a better chance of making money from IBX.”