“When building a risk-managed portfolio, it becomes imperative to know what you are buying,” Vanneman said in the article. “And with ETFs, I believe that the transparency they provide is indeed one of their key features, giving the product category a big leg up on mutual funds.”
For instance, active mutual funds that only reveal holdings on a quarterly basis may quickly shift positions in a short timeframe, leaving investors in the dark with what they are actually holding. In contrast, most ETFs, both active and passive, will update holdings on a daily basis. [Vanguard ETFs Eschew Daily Disclosure]
“Since I know that ETFs’ holdings are listed, and I know arbitragers are out there trolling to pick up these nickels and dimes that may only appear for fraction of a second, I am confident that the ETF I’m buying for investors is doing exactly what I thought it would do when I put it in a portfolio,” Vanneman added.
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.