ETFs: Barrons Weighs In.
A week ago Barrons-the weekly investment magizine published by the Wall Street Journal published a special insert on ETFs. We're going to continue or discussions on ETFs by taking a look at some of what they wrote in that special edition. Today we publish an excerpt from their introduction on ETFs.
EXCHANGE-TRADED FUNDS probably rank as the most successful financial product of the past two decades. They have cut costs, minimized risks and allowed investors to know at any point in time exactly what they own.......
.....ETFs are not for everyone. Many investors will always want to beat the market by picking their own stocks and bonds. Others want to accomplish the same thing by picking expert portfolio managers to do the job. Still, whether you choose to use ETFs or not, it's important to know how they work and how other investors are using them.
When ETFs were introduced in the early 1990s, they seemed a gimmick. Much was made of the fact that, unlike mutual funds, ETFs allowed investors to buy and sell at current market prices during the day. That was important to some professionals. But most individuals don't have much need to jump in and out of the market hourly.
As it turned out, the attributes that contributed the most to the explosive growth of ETFs among individuals were not ease of trading but tax efficiency and low cost. While mutual-fund managers must sell stocks when clients redeem shares, ETFs do not, thus limiting owners' tax bills. As for the cost savings, they come about largely because ETFs don't have fund managers.
A substantial part of the investing public has voted with its feet. ETFs now hold about $700 billion in assets, which amounts to nearly 15% of the $4.5 trillion held in traditional equity mutual funds. As Mike Santoli points out in his story, "Growing to the Sky," ETF assets are expected to grow by more than 20% a year for the next five years, while mutual funds grow at a much slower pace. A good part of the growth will come from high-net-worth individuals.......
EXCHANGE-TRADED FUNDS probably rank as the most successful financial product of the past two decades. They have cut costs, minimized risks and allowed investors to know at any point in time exactly what they own.......
.....ETFs are not for everyone. Many investors will always want to beat the market by picking their own stocks and bonds. Others want to accomplish the same thing by picking expert portfolio managers to do the job. Still, whether you choose to use ETFs or not, it's important to know how they work and how other investors are using them.
When ETFs were introduced in the early 1990s, they seemed a gimmick. Much was made of the fact that, unlike mutual funds, ETFs allowed investors to buy and sell at current market prices during the day. That was important to some professionals. But most individuals don't have much need to jump in and out of the market hourly.
As it turned out, the attributes that contributed the most to the explosive growth of ETFs among individuals were not ease of trading but tax efficiency and low cost. While mutual-fund managers must sell stocks when clients redeem shares, ETFs do not, thus limiting owners' tax bills. As for the cost savings, they come about largely because ETFs don't have fund managers.
A substantial part of the investing public has voted with its feet. ETFs now hold about $700 billion in assets, which amounts to nearly 15% of the $4.5 trillion held in traditional equity mutual funds. As Mike Santoli points out in his story, "Growing to the Sky," ETF assets are expected to grow by more than 20% a year for the next five years, while mutual funds grow at a much slower pace. A good part of the growth will come from high-net-worth individuals.......
posted by CR English at 8:07 AM
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