Many of you will have read about the advantages of Exchange Traded Funds over Mutual Funds. However, have you considered beyond the “ETF” moniker to ask: “What ETF index should I be looking for”?
To start with, let’s quickly examine the basics of ETFs. These are generalities, but tend to hold true.
Exchange Traded Funds are managed such that the asset allocation of the fund matches the underlying index the fund is attempting to emulate. The indexes range from well known (e.g. S&P500) to obscure, created specifically for the ETF (e.g. water focused). Management fees are generally less than 0.5%, but can be higher for specialized funds. ETFs trade daily on the stock exchange and can trade at a premium or discount to the underlying assets. Through fancy footwork, ETFs generally retain profits within the fund and make only small distributions each year.
