Bill Donoghue of MarketWatch asks, "What is so threatening to the traditional mutual fund industry about exchange traded funds (ETFs)?"  After all, ETFs have only 3.9% in assets compared to the entire mutual fund industry. And mutual funds come in 23,000 combinations, including all the class shares, versus ETFs that come in only one class.

Part of the threat is that mutual funds are seen as a buy and hold investment.  But what happens when a shareholder’s assets need protecting, such as in a market downturn?  The prospectus’ state shareholders are never protected by a declining financial market, so then why are there management fees when the manager isn’t protecting the assets?

It becomes evident why some investors would like an alternate route for an investment strategy; one that is not managed by managers who charge fees and commissions while doing nothing to protect the shareholders.  ETFs follow indexes, so there is little reason for a fund manager and management fees, however, investors due pay an expense to upkeep the ETF.

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.