Many People See ETFs As Mutual Funds With Extra Bells And Whistles

bells-and-whistles“While exchange-traded funds have been catching on with mom and pop, institutions still held roughly half of all ETF¬†assets at the end of last year, according to a study by the largest ETF firm. Sophisticated investors like brokerage firms, hedge funds and pension funds held about $250 billion of the $497 billion in U.S. ETFs at the end of December 2008, says a report from Barclays PLC (BCS), which offers investors iShares ETFs. The figure could surprise some,” Ian Salisbury Reports From The WSJ.

“In the U.S. everyone says ETFs are a retail product,” says Barclays analyst Deborah Fuhr. “Many people see them as mutual funds with extra bells and whistles.”

“Exchange-traded funds do share the same legal structure as conventional mutual funds. But there are crucial differences. ETFs trade throughout the day like a stock at prices that match their underlying values, combining features of conventional open- and closed-end funds. Moreover, almost all ETFs are index funds, meaning they don’t employ a fund manager to pick stocks but instead aim to replicate returns of a certain corner of the market, like financial stocks or small caps, an approach that is far less costly. Low costs and ease of trading means they’ve long been popular with sophisticated investors as a way to get market returns in areas where these money managers don’t want to actively pick stocks,” Salisbury Reports.

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