Exchange traded fund (ETF) investing has become the choice among investment advisors for their clients’ separately managed accounts. Richard Romey, president of ETF Portfolio Solutions, gave insight into the ETF world from his perspective, with Investor’s Business Daily, via CNNMoney.

The primary advantages of using ETFs instead of most mutual funds are obvious: lower fees, more flexibility and greater tax advantages. Romey evaluates ETFs with a top-down approach, beginning with the asset class, then internal fees, tracking error, makeup and provider. His focus gravitates toward industry giants Barclays, State Street and Vanguard.

A big mix-up with investors is that they equate trading volume with liquidity and, unlike common stocks, ETFs are an open-ended investment tool with no finite number of shares. When considering the liquidity of an ETF, it is more a matter of the function of the liquidity of the shares of stock in the underlying index and not a function of trading volume.