Exchange-Traded Funds
ETFs resemble index mutual funds in that they hold a basket of stocks (or bonds) and give you instant diversification. But there is one important structural difference that allows ETF investors to take advantage of sophisticated investing strategies not allowed with either index funds or actively managed funds that can help control portfolio risk. An ETF looks like a fund but it trades on a stock exchange just like a stock. That allows you to sell short shares of ETFs, as well as purchase put and call options and use stop-limit orders. All of these tactical moves can help reduce and control your overall portfolio volatility.
The Adviser Investments approach is to use ETFs as a complement to both actively managed funds and index mutual funds. By mixing in ETFs with actively managed funds, we reduce the overall cost of an investment portfolio, while still giving our clients the opportunity to capture index-beating returns.
Other Benefits of ETFs
-Greater flexibility to pinpoint or target a certain industrial sector or geographical region.
-Style and market cap purity. No style "drift" as with many funds.
-Eliminates "manager risk" and the risk of a key manager leaving a fund.
-Complete transparency--know exactly what you own today, unlike funds, where holdings are only disclosed four times a year and may be outdated by the time you see the report.