ETFs have surged in popularity in recent years in part because of the numerous advantages they offer over traditional actively-managed mutual funds: lower costs, potential tax efficiencies, intraday trading, and enhanced transparency. But ETFs aren’t without potential drawbacks of their own. Although most funds appear relatively simple on the surface, there are some rather complex nuances as well. Below, we highlight five important questions for investors looking to avoid potential pitfalls and maximize efficiency of ETF portfolios (for more tips on ETF investing, sign up for our free ETF newsletter). [click to continue…]
The reasons for the incredible rise of the ETF industry are numerous. Intra-day trading, enhanced transparency, and efficient tax features are all features that investors, individual and institutional alike, have embraced in record numbers. But perhaps the main reason why ETFs have attracted hundreds of billions of dollars in assets in recent years is the competitive cost structure they offer relative to traditional actively-managed mutual funds. Investors frustrated with the inability of most active managers to consistently beat their benchmark have been fleeing mutual funds in record numbers, embracing indexing as a strategy and ETFs as a preferred investment vehicle.
But investing in ETFs doesn’t necessarily mean that investment expenses are kept to a minimum. Expense ratios among ETFs can vary significantly, and several of the most popular ETFs charge more than twice the fees of otherwise similar products. Reducing a portfolio’s weighted-average expense is a relatively easy task that can have a big impact on the bottom line. With the holiday season in full swing, we’ve channeled our inner Ebenezer Scrooge, identifying five ETFs found in most investor portfolios that can be replaced by low-cost competition:
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Due to the role they played in spawning the recent global financial crisis, mortgage-backed securities are viewed by many as “portfolio poison.” As individual and institutional investors looked to dump these securities last year, the federal government was “forced” to acquire a huge MBS position. With signs of a sustainable recovery popping up, the Fed [...]
Even the most vocal supporters of passive management and indexing have to admit that certain investor track records are far too stellar to attribute entirely to luck. While I’ve frequently disparaged the concept of active investing, I’m still eager to hear what trends legendary investors are following. The Wall Street Journal’s Gregory Zuckerman recently compiled some [...]
