To capture investor interest, Exchange Traded Funds (ETF) have become the latest market innovation. Since 1990, they have been actively traded in a form of basket of securities.’ Assess the main features of exchange traded funds (EFTs) drawing on their advantages and disadvantages as the cause of their popularity. Advantages Diversification Can be traded like stocks Lower fees for passively managed ETFs Reinvestment of dividends No minimum investment amount needed Lower capital gains compared to actively managed mutual funds. Discounts and premium prices are lower Disadvantages Lower levels of diversification Overkills intraday pricing Costs could be higher than mutual funds-broker fees Dividend yields are generally low. Returns on leveraged ETFs can be skewed
To capture investor interest, Exchange Traded Funds (ETF) have become the latest market innovation. Since 1990, they have been actively traded in a form of basket of securities.’ Assess the main features of exchange traded funds (EFTs) drawing on their advantages and disadvantages as the cause of their popularity. Advantages Diversification Can be traded like stocks Lower fees for passively managed ETFs Reinvestment of dividends No minimum investment amount needed Lower capital gains compared to actively managed mutual funds. Discounts and premium prices are lower Disadvantages Lower levels of diversification Overkills intraday pricing Costs could be higher than mutual funds-broker fees Dividend yields are generally low. Returns on leveraged ETFs can be skewed
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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‘To capture investor interest, Exchange Traded Funds (ETF) have become the latest market innovation. Since 1990, they have been actively traded in a form of basket of securities.’
Assess the main features of exchange traded funds (EFTs) drawing on their advantages and disadvantages as the cause of their popularity.
Advantages
- Diversification
- Can be traded like stocks
- Lower fees for passively managed ETFs
- Reinvestment of dividends
- No minimum investment amount needed
- Lower
capital gains compared to actively managed mutual funds. - Discounts and premium prices are lower
Disadvantages
- Lower levels of diversification
- Overkills intraday pricing
- Costs could be higher than mutual funds-broker fees
- Dividend yields are generally low.
- Returns on leveraged ETFs can be skewed
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