Word: etfs
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Dates: during 2010-2019
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...large spread can effectively wipe out any cost advantages over mutual funds. "You might save 20 basis points [i.e., 0.2 percentage points] on the cost of the ETF, but what if you're paying 200 basis points [2 percentage points] more because of the trading spread?" asks Borek. The spread risk is exacerbated in emerging markets and specialized niches in the global markets, where data are scarce and trading is limited...
More recently, the investor spotlight has been shining brightly on a new line of ETFs - ones that are actively managed. Firms ranging from Invesco to Pimco have launched about 12 of these funds over the past two years; others, such as T. Rowe Price Group and John Hancock Funds, are preparing to roll out similar funds, all in an effort to go head-on against actively managed mutual funds. "It's clearly a category that's attracting more interest among ETF providers and mutual-fund companies," says Standard & Poor's Tom Graves. "It combines the characteristics of a passive, index...
...fund as well as the fund manager's trading activity. In some cases, managers may occasionally adjust the weightings of certain stocks within an index, while others may aggressively manage the portfolio every day, all of which could affect fees. Before buying, experts advise scrutinizing the active ETF's fee structure and to check the fee frequently - since fund companies may offer a low fee up front to attract investors, then raise it later...
...even bigger concern is that active ETFs must disclose their holdings daily rather than quarterly as mutual funds do. Although this makes the ETF more transparent, it also opens up the ETF to the risk that savvy hedge funds and others may snap up shares in a stock that an ETF is known to be moving into. This practice, known as front-running, could drive up the stock price and thereby dull the ETF's performance...
...your goal is to beat an index, a good low-cost mutual fund may still have the edge. Says Lee: "I would rather buy a known management team and pay a slightly higher fee in a mutual fund than rush to an ETF structure just for lower fees...