As passive management gained in popularity, however, strategic investors who wanted tax efficiency and flexible trading attributes in their long-term investments began to adopt a variety of broad, market-weighted ETFs as core portfolio holdings. While the costs of holding and trading ETFs still mattered, these strategic investors also began to focus on other perceived costs that could potentially create performance drag over time — costs such as asset turnover, capital gains and how closely the fund tracked to its underlying index.

More recently, the emergence of non-traditionally weighted indices has given strategic investors greater choice and precision to tailor portfolio implementation to their specific investment views or goals. That development, too, brings with it additional costs to consider.

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