Making Sense of Exchange Traded Funds.

An Exchange Traded Fund (ETF) is a basket of stocks, bonds, cryptocurrency or other assets grouped together in a bundle.

Just as a basket of fruit may contain apples, grapes, strawberries and blueberries an ETF like the S&P 500 ETF or the Vanguard S&P 500 ETF may contain Apple Computer, Disney, Netflix and Target in one bundle. Unlike a Mutual Fund the ETF often does not have a money manager allowing ETFs to typically have a lower expense ratio closer to 0.50%.

What’s new with ETFs?

ETF Assets are Growing

According to asset manager State Street Global Advisors ETFs have grown to north of $11 trillion dollars in assest over the past 20 years. By comparison the mutual fund industry has approximately $35 trillion in assets.

Why?

  1. ETFs trade intraday like stocks allowing investors immediate access to an asset class

  2. ETFs products are constantly innovating. Investors can own a broad index like the S&P 500 or can drill down to gain specific sector exposure. Examples of sector funds include oil (XLE), tech (XKL), biotech (IBB), retail (XRT) and cryptocurrency (BTC).

  3. ETFs typically have expense ratios closer to 0.50% verus mutual funds with expense ratios closer to 0.90%