ETFs 101: Understated Traits of Owning an ETF

ETFs are known for their tradability, transparency, tax efficiency and low-costs. What else is there to know?

Ben Johnson, director of global ETF research for Morningstar, argued that ETFs provide some “undersold” benefits that many investors are overlooking.

For starters, ETFs are flexible investment tools. Johnson pointed out that investors can go long ETF shares, sell short, buy on margin, buy and sell options, lend to others to collect a fee and more.

“This versatility can attract a very large and diverse investor base that uses these funds in meaningfully different ways. The diversity of ETFs’ base of investors and their use cases is the foundation of healthy liquidity in ETF shares, which benefits all investors in the fund,” Johnson said.

ETFs are also relatively predictable, which lends them a sense of reliability. Most of the funds are index-based and do not expose investors to idiosyncratic risks associated with traditional active strategies, notably management risks. With an index-based ETF, investors can rest easy, knowing that their investment is doing what it stated it will do.