Professional investors have been quicker adopters of exchange traded funds than individual investors, a financial advisor says, which suggests ETFs have more room for growth in the retail space.
“One factor that appeals to professionals is that ETFs trade throughout the day whereas mutual funds only buy or sell shares once a day. So an active trading strategy would not work well with mutual funds which generally dislike frequent trading in and out. However, there is no such restriction on trading ETFs,” says Kurt Brouwer for MarketWatch. [Why ETFs Are Changing the Investment Landscape.]
ETFs can also be a tool for hedging within a portfolio. Inverse and leveraged ETFs make this possible, for example, so an investor can position for movements in both directions if they desire. [Are Specialty ETFs Right For You?]
“In my view, the leveraged ETFs should be used more as trading vehicles,” Brouwer writes. “In other words, to use them you would have to have a strong viewpoint on a given sector or on the direction of the market overall. And, you would have to be prepared for a wild ride.”
Even though ETFs have made new markets and asset classes available, investors need to consider their risks. [Don’t Overlook ETF Risks]
Tisha Guerrero contributed to this article.
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.