Exchange Traded Funds (ETFs) are some of the fastest-growing investment vehicles in the financial markets today. Like index funds, ETFs are portfolios of stocks or bonds that track a specific market index. Like stocks, ETFs can be bought and sold, long or short, on an exchange throughout the trading day. In 2004, US assets in ETFs grew 50% – from around $150 billion to over $225 billion by year end as investor demand for trading flexibility, transparency and cost-efficiency increased.
Now you can implement a targeted asset allocation strategy or fine-tune a tactical one while partaking in the diversification offered by index funds.
Common Uses of Exchanged Traded Funds
- Diversification
- Portfolio Completion
- Sector rotation
- Tax loss harvesting
- Cash equitization
- Duration/credit adjustment
- Hedging
Benefits of Exchange Traded Funds
- Diversified Index Portfolios. ETFs provide exposure to a broad range of global capital market indices, making them an ideal vehicle for constructing asset allocation portfolios.
- Effective Tax Management. Investors in ETFs control their own individual cost basis, which can provide a more effective means to manage tax liability than investing in mutual funds.
- Low Expenses. Because of their unique structure, ETFs generally offer lower internal expense ratios than comparable index mutual funds.