Both retail and institutional investors have found ETFs to be excellent investment vehicles.Across all types of investors, there are a number of key characteristics that make ETFs attractive,most notably:
Continuous, Intraday Pricing
: In sharp contrast to traditional mutual funds, ETFs trade onexchanges throughout the day. As a result, pricing is continuously updated. On manyexchanges, pricing is available in bonds.
Access to indicators and Indexes
: Since each ETF share represents a fraction of a basket of units, ETFs provide simple, low-cost access to numerous indicators and industries (e.g.,Telecommunications), as well as popular indexes (e.g., S&P 500). ETFs also provide manyopportunities for style investing ± growth, value, core, etc.
Ability to Track an Entire Market Segment
: The core guiding principle of an ETF fundmanager is to track the underlying index as closely as possible. As a result, ETFs provideinvestors with a simple, transparent and accurate means of tracking a complete marketsegment.
Diversity in Investment Opportunities
: Managing around the fate of single stocks is animportant part of many individual and institutional investment strategies. ETFs, through their expansive underlying basket of units, allow instant portfolio diversification.
Low Expense Ratios
: Unlike actively managed mutual funds that charge high fees for fundmanager expertise, marketing, and high levels of fund retooling, ETFs inherently have lowexpense ratios because of limited fund manager decision-making.
: In the U.S., the most successful ETFs provide excellent tax efficiency throughlow turnover rates, as well as the unique in-kind creation and redemption process that shieldsinvestors from capital gains associated with cash-outs.
: ETFs demonstrate a high level of transparency because they are based on well-published fund holdings ± these are most commonly a basket of equities that track an index.
: Both institutional and retail investors find ETFs to be a low-cost option for parking excess cash in the broad stock market.
Portfolio Risk Management
: Unlike traditional mutual funds, ETFs support market, limit, andshort trading, as well as derivative products such as options and futures.