An exchange traded fund (ETF) is an investment vehicle constructed of individual securities, such as stocks or bonds, that trades on a stock exchange and is generally designed to track the performance of an index. ETFs have been available in the United States since 1993, and have exploded in popularity during the past decade. The original ETFs were designed to track major market indices, such as the S&P 500 or NASDAQ. However, over time, the ETF market has evolved, and now an investor can utilize ETFs that track individual market sectors, countries or commodities, to name a few options.
One of the most notable innovations in the ETF market came about in 2008 when the U.S. Securities and Exchange Commission approved the formation of the actively managed ETF. The primary difference between a traditional ETF and an actively managed ETF is that the actively managed option can be designed to follow a specific investment objective not represented by an existing index. For example, an investor might want to replicate the performance of an existing mutual fund.
From an investor’s perspective, one benefit to owning an actively managed ETF instead of the equivalent mutual fund is that the mutual fund’s performance can be negatively impacted by frequent redemptions from mutual fund investors. Since an ETF has a fixed number of shares outstanding that trade on a stock exchange, the buying and selling of the ETF shares does not impact the investment decisions of the ETF manager. Other benefits include lower expense ratios, greater tax efficiency, and increased transparency compared to the equivalent mutual fund.
Currently, actively managed ETFs are still in their infancy. Investors, however, can expect to see an increase in the number of offerings from various ETF providers in the future.
For more information, please contact Henssler Financial at 770-429-9166 or experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
