Exchange Traded Funds and Their Big Advantage
November 6th, 2010 | Author: weissheiss
The following are several of the many advantages of ETFs:
1. Lower Costs-ETFs are known for having no fees. Some ETFs however, do have some minimal but much lower marketing, distribution and accounting fees. ETFs traditionally have lower costs than other investment products. ETFs are not actively managed which excludes them from paying fees associated with buying and selling securities to accommodate purchases and redemption.
2. Flexibility to buy and sell- ETFs hold a huge advantage over mutual funds in that they can be bought and sold at current market prices during the day while mutual funds can only be traded at the end of the day. ETFs are also able to use hedging strategies being able to be purchased on margin and sold short, as a publicly traded security. Investors can also specify the price at which they are willing to trade by being able to trade ETFs using stop and limit orders.
3. Tax efficiency- Generally ETFs have lower turnover of their portfolio securities, which help to have lower capital gains taxes. The power to not have to sell securities to meet investor redemptions also increase ETFs tax efficiency. ETFs are known for having more aggressive tax advantages than other financial investment products.
4. Market exposure and diversification- Index ETFs inherently provide diversity across and index. In fact, ETFs bring exposure from a large variety of markets including broad-based indexes, broad-based international and country-specific indexes, industry sector-specific indexes, bond indexes, and commodities. ETFs are a common sense choice to keep portfolio allocations balanced, and to “equitize” cash for quick investment.
5. Transparency- There is no doubt transparency is one of the greatest benefits of ETFs. Whether is it is index funds or actively managed, ETFs are priced at frequent intervals throughout the day. Traditional investment products typically do not allow the same degree of transparency at do ETFs.
Exchange Traded Funds (ETFs) many advantages skyrocketed their popularity very quickly. By the end of November, 2009, ETFs net inflows were at $32B. ETFs continue to be among the great investment methods.
Posted in 
Tags: