Exchange traded funds are quickly becoming an investor favorite due to their diversification and liquidity benefits. Retail investors are able to use ETFs with ease which has contributed to the quick rise in assets under management since their debut in the U.S. in 1993.
“There are currently 1,234 funds available from 38 different providers, but the marketplace is dominated by the top three providers. Blackrock, State Street, and Vanguard control approximately 83% of the U.S.listed ETF market,” David Fabian, Chief Operations Manager of Fabian Capital Management, wrote in a recent commentary. [How Investors Should Use ETFs]
Diversification is built into an ETF since it is essentially a basket of stocks that trades on an exchange. There are plain-vanilla, broad based ETFS that track an entire index such as the S&P 500, or funds that track specific sectors or asset classes. Many ETFs track an underlying passive index. [Inside ETFs Conference: Look Out Mutual Funds]
Instant liquidity and transparency are other built-in features of ETFs. The ability of an ETF to trade with the ease of a single stock any time of the day is useful for both long term investors and day traders. The transparency allows holdings to be viewed in real time, rather than just at the close of a trading day, so an investors knows exactly what they are investing in. [3 Misconceptions About ETFs]