Katie Benner of TheStreet.com looks at exchange traded funds and how they may grow with an economic downturn. 

Reasons why ETFs would do better after a market slowdown:

  1. Investors tend to find new ways to invest and evidence shows investors leave mutual funds – ETFs would be an alternative investment vehicle;
  2. With a mutual fund, a fund manager is forced to sell holdings as more people redeem shares, even if it is not a good time to sell – this is not the case with ETFs;
  3. There is a tax and fee burden for those investors who stay in a mutual fund while the manager sells positions – ETF owners do not get penalized when another investor sells shares;
  4. Investors will focus on things they can control to boost returns, such as fees – fees are lower in ETFs.

ETFs are easier to understand and less costly than mutual funds, so when investors go back in the market, they may look to ETFs as an option.

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.