Transparency has also been a key selling point of ETFs. ETFs provide daily disclosure of portfolio holdings, even for actively managed ETFs. Mutual funds only provide monthly disclosures at the earliest or quarterly disclosures, along with daily disclosure of NAV.
Cheap costs is another lauded attribute of the ETF investment vehicle. ETFs typically have lower expense ratios since client services are handled by broker and they only passively track an underlying index. Mutual funds, though, may incur higher fees and include the 12b-1 fees associated with marketing or distribution.
Tax efficiency has also been an attractive factor found in ETFs as their so-called in-kind redemption process can diminish capital gains tax liability for investors. Cash requirements for share creation and redemptions limit the ability to manage tax liability in mutual funds.
However, ETFs typically don’t come with automatic investing and require investors to execute the trades as if they are single stocks.
For more information on ETFs, visit our ETF 101 category.