While mutual funds have trillions in assets under management and are familiar to all investors whether they use them or not, exchange traded funds (ETFs) have been slowly chiseling away at the mutual fund empire and provide people with a much-needed investment tool.
In just a short period of time, ETFs have garnered widespread popularity, globally pushing through the $1 trillion barrier and still continuing to grow, comments Dan Caplinger for The Motley Fool. The ETF industry has attracted investors with wide range of products that offer low costs, transparency, easy day-to-day trading and coverage of basically every corner of the financial markets. [ETFs: More Than Just Mutual Fund Alternatives.]
The ability to trade ETFs like a stock also comes with transaction fees, which some see as holding the industry back – mutual funds seem more attractive to the periodic investor, who adds small amounts of new money on a monthly basis. However, Charles Schwab, Fidelity and Vanguard are now offering ETFs on a commission-free basis. [Where the Cheap ETF Trading Is.]
So far, the popularity of ETFs seems to be focused on ETFs that passively follow an index at a low cost and short/leveraged ETFs that many day traders are now utilizing to profit on the demise of indexes. Now, fund providers are moving toward the actively managed ETF space, which may seem like a contradiction to what an ETF is suppose to be. [ETFs vs. Mutual Funds: And the Winner Is…]
With big names like PIMCO and BlackRock aggressively pushing actively managed ETFs, other major competitors will likely follow. ETF providers state that the transparency and lower costs in these ETFs will be better than their mutual fund counterparts. But major mutual fund management companies believe that less frequent disclosure will benefit their clients more since it is possible to enter positions gradually over time instead of risking frontrunners looking at daily ETF disclosures.
For more information on mutual funds, visit our mutual funds category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.