Exchange traded funds (ETFs) have a lot to offer investors, but what do they really bring to the table?

Matthew Hougan for Index Universe offers his take on what are truly the best things about investing in ETFs. By process of elimination, he comes to his conclusion that there are two things above all others that ETFs have to offer.

Many claim it is the low fees that attract investors, however, different share classes at Vanguard make Hougan question this. Transparency is also touted, but many funds stick to their indexes with no problems. Excitement could be another reason, but there can not be any excitement without real substance.

The best characteristic an ETF can offer, in Hougan’s opinion, is tax efficiency. As far as straight equities are concerned, ETFs are the best idea for getting maximized tax benefits.

The other amazing thing ETFs provide are easy access to institutional-grade newer asset classes. ETFs are taking on a new investment life, transforming advisors from stock pickers to asset allocation strategists. Between commodities, real estate, currencies and even timber, the investment horizon has just widened. You can buy the entire market for just 0.7%, if you were so inclined.

We agree – ETFs have made it simple for even the Average Joe investors to play along, not just because of their tax benefits and easy access, but because of their low expenses, transparency and simple, all-day trading. After so many were let down by their mutual funds in the early 2000s, ETFs have made it easy for self-directed investors to have more control.

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.