Over the past decade or so, ETFs have increased in popularity as funding vehicles for investment portfolios.
The Mechanics of an ETF
When you purchase an ETF you are essentially buying a diversified portfolio of assets within a particular sector, much like an index mutual fund. Unlike mutual funds, which are priced at the end of each trading day, ETFs are priced throughout the trading day, just like stocks. Like stocks, ETFs can be sold short, or can be purchased on margin, allowing additional options for enhancing (or reducing) investment returns. ETFs also tend to be more tax efficient than mutual funds, and their expense ratios (management fees + trade expenses) are generally lower as well.
Nobel Prize Winning Research: Invest Dynamically
In our opinion, one of the main advantages of ETFs is the ability to manage client funds more dynamically as investment risks increase or decrease for a particular market sector. This allows us to overweigh or underweigh various market sectors in response to changing investment environments. The ability to manage dynamically based on risk, rather than the buy and hold approach which is based on long term averages, allows us to manage client portfolios in line with the Nobel Prize winning research of the past decade. This research shows making investment allocations dynamically based on changing risks, allows for improved performance over a market cycle with reduced volatility.
The ability to improve returns for our clients with less risk is our ongoing goal. We feel the inclusion of ETFs in client portfolios makes this job a little bit easier!