ETFs: The Wave of the Future?
Word on The Street is that exchange-traded funds are the wave of the future. Over the past several years ETFs have become some of the most actively traded issues on the NYSE. Last month, ETF assets surged by a staggering $20 billion to $480 billion, according to State Street Global Advisors. ETF Guide reports that the total number of U.S. listed ETFs surpassed 500 in the second quarter. Fund managers are making a fortune on these passive investments. Now, as institutions and individuals pour money into ETFs, executive recruitment firm A.E. Feldman says candidates seeking portfolio management opportunities would benefit from stepping up to address ETFs and learn more about this growing class of low-cost securities.
An ETF is a security that tracks an index or a basket of assets, but trades like a stock on an exchange. Unlike index funds, which are priced once after the end of each trading session, ETFs can be bought and sold throughout the market day. Intraday trading allows investors to take advantage of temporary price dips. Market timing isn’t the only advantage offered by ETFs. Every active trading strategy that can be used with traditional stocks, such as shorting and buying on margin, can also be used with ETFs.
Available in hundreds of varieties, ETFs track nearly every index imaginable. There are ETFs for virtually every sector and subsector in stock markets around the globe. For example, emerging markets ETFs allow an investor to spread their dollar across a number of countries and currencies while getting exposure to some of the fastest growing economies in the world.
These securities also offer all of the benefits associated with index funds, including low turnover. And to top it off, their expense ratios are significantly lower. The average management fee expense for an ETF is 0.24 percent.
While ETFs are currently structured to track an index, are professionally or actively managed ETFs the wave of the future? The ETF industry seems to be taking baby steps in that direction. These funds could be set up to track an investment manager’s top picks, mirror a mutual fund or shadow a particular investment strategy with the potential to deliver above-average returns. In the meantime, exchange traded funds are gaining popularity among traditional mutual fund managers as an investment tool that provides additional diversification.
