Why Do We Use ETFs?
Exchange traded funds (ETFs) are one of the more exciting and versatile investment products that have been created in the past twenty-five years. Since the inception of ETFs, investors have poured more than $1 trillion into them and almost 1,000 ETF products are currently traded on U.S. exchanges. The 6th Avenue Team incorporates ETFs into our clients’ portfolios because of their many advantages.
Advantages of Exchange Traded Funds:
• ETFs give investors diversification across industry groups to reduce a portfolio’s volatility. We recommend sector ETFs to develop a diverse portfolio of companies across all major sectors of U.S. industry.
• ETFs allow us to underweight or overweight an industry sector when our research and analysis gives us strong convictions about the future performance of an industry sector.
• ETFs are tax efficient investment products. We can use ETFs to reduce the tax burdens that accompany a successful investment strategy.
• ETFs have low fee structures, particularly in comparison to mutual funds that have similar holdings to an ETF.
• ETFs are tradable on exchanges during the regular course of a trading day, with more transparent pricing than is offered by mutual funds.
• For the bulk of the ETFs we recommend, no single company represents more than 4% of its value. This allows us to minimize the impact of a single company on an investor’s portfolio.
What is an ETF?
6th Avenue Team Lays Out the Basics
An exchange traded fund is a basket of securities that investors can buy or sell on a stock exchange. Since they were first developed in 1993, ETFs have been created to include virtually every conceivable asset class from traditional equity and bond holdings, to more esoteric products such as commodities and currencies.
Like individual stocks, ETFs have ticker symbols that are used on exchanges. Also, like individual stocks, investors can see the immediate bid and ask pricing for an ETF throughout a trading day. ETFs provide a more immediate picture of the price of a trade than mutual funds, which require investors to place an order well before its price will be known, after the close of the trading day.
If you would like to learn even more about ETFs, please enjoy this 2 minute video from Bloomberg.
Why are Exchange Traded Funds So Popular?
The 6th Avenue Team believes that ETFs are crucial building blocks of any long-term investment portfolio. ETFs are very popular in today’s market because they:
• Are more flexible than mutual funds and give investors the option to trade on margin, to sell short, or to buy small or odd lots of ETF shares
• Have much lower management fees than mutual funds
• Avoid legacy capital gains taxes that may be embedded in mutual funds, and are otherwise more tax-efficient and tax-friendly than mutual funds
• Rarely, if ever, deviate from the value of the assets that comprise the ETF
• Provide greater liquidity in volatile markets
• Offer investors an opportunity for diversification by facilitating investment across many sectors of the US market
The 6th Avenue Team is located in midtown Manhattan. With more than 50 years of combined investment advisory experience, we look forward to creating a personal investment strategy for you that will serve your long-term financial goals. Please contact us to schedule a meeting with one of our principals today and learn more about exchange traded funds and other investment products and strategies.
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