Exchange traded funds (ETFs) are designed to accommodate all types of investors. They are popular for both traders and long-term investors and industry assets are equally divided among retail investors, financial advisers, and institutional investors including hedge funds. John Spence of reports most of the trading volume for ETFs comes from seasoned traders and hedge funds with short-term views on entire market sectors. Likewise, many investors use ETFs as a buy-and-hold plan because they are affordable, diversified and tax-efficient.

ETFs can charge lower fees than a mutual fund because investors don’t interact directly with the fund since shares are traded on an exchange.  In addition, traders and long-term investors don’t get in each other’s way with ETFs like they do in mutual funds.  When shares of a mutual fund are redeemed, the manager must provide the cash to pay out, this can cause larger gains for the buy and hold investor.  This isn’t an issue for ETFs.

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.