“We have to tell them to stay the course, that these have good risk-adjusted performance over a very long time," he said. "If you hold them for 30 years, you’ll do well on a risk-adjusted basis, but if you hold them for three years, it’s a crap shoot.”
There is some debate that ETFs have caused more market volatility and panicky behavior by retail investors, but the panelists disagreed.
“Traders will trade, regardless [of the vehicle],” Johnson said. “It’s not an ETF-specific issue. It’s more behavioral at the level of the individual investor in question. There’s not an increased proclivity to trade ETFs. They would trade mutual funds, too, but they would do it at NAV at the end of the day.”
But to prevent mispricing, Johnson said, traders need to take some simple precautions such as using limit orders rather than stop-loss orders, or not trading in the first half-hour or hour of the trading day. “It takes ETFs a while to wake up in the morning because the underlyings need to open,” he noted. “If you don’t like the ‘ET’ in ETF, get an index fund.”