The exchange traded product business has allowed investors to access broad swaths and small corners of the market to enhance their investment objectives. The title “exchange traded fund investor” is still a vague, subjective term that has grabbed more attention as the industry matures.
“We conclude that it is not valid to assume that the so-called ETF temptation effect explains the higher-observed trading in ETFs relative to mutual funds, nor is it reason for long-term individual investors to avoid using appropriate ETF investments as part of a diversified investment portfolio,” Vanguard Research said in a recent note regarding the recent claim that holding ETFs tempts investors to trade frequently.
According to Vanguard, an ETF may be chosen by an investor that intends to trade rather than claiming that ETF holdings are a direct cause for increased trading activity. Ari Weinberg for Forbes reports that Vanguard’s unique fund structure, in which ETFs are a share class of a mutual fund, and the position as a record-keeper of brokerage trades gives the company the basis for the research. [Alternative ETFs May Find Home in Separate Accounts]
The company concluded that a typical ETF investment is about 15% less likely to be a buy-and-hold investment than a traditional mutual fund. [ETFs and Financial Advisors]