Exchange traded funds (ETFs) have become a popular investment tool, even among mutual fund managers. That’s right, there are mutual funds that use ETFs either as all or part of the portfolio. Rob Wherry for The Wall Street Journal reports iShares MSCI EAFE (EFA) is the top holding in actively run Huntington Rotating Markets Fund (HRIAX). There are other firms that offer ETF mutual funds, although the number is small, it is growing.
The idea behind an actively managed mutual fund is investors pay annual expenses higher than those charged by passive funds. The idea is that the manager’s stock-picking skills will be able to beat the broad market. So when mutual funds use ETFs, the investor ends up paying fees for the underlying ETFs, management fees for the mutual fund and a sales charge for the parent fund. These fees can add up, but the ETFs can give diversification.
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