One of the key advantages of ETFs over mutual funds and mutual funds is their real-time quotation on the stock exchange. This allows investors to buy and sell ETF shares at any time. The liquidity of such assets is guaranteed by the market maker, who ensures a match between the exchange price of the ETF and its assets. This process makes the structure of the ETF transparent, allowing you to view the contents of the portfolio at any time.
Most ETFs are focused on passive investing, simply repeating the performance of a specific index. Not having to beat the market reduces their analytics and management costs, which in turn results in low fees for investors.
Comparing fees, it is worth noting that the management fee for many open-end mutual funds is 2-6% per year, while the fees for the largest ETF providers range from 0.03% to 0.5% per annum. This makes ETFs ideal for passive investment strategies.
A look at the ETF market
The ETF market is concentrated in the hands of a few key players:
- • iShares from BlackRock is a market leader with assets exceeding $6 trillion.
- • Vanguard has been a pioneer in index mutual funds since the 1970s.
- • State Street Global Advisers – manages SPY, the first US ETF focused on the S&P 500 index.
If the ETF’s management company encounters financial problems, investors can turn to the underlying assets in the fund’s holdings, which are held by an independent custodian. This creates additional protection for investors.
Among all the instruments for reflecting the index, ETF remains the most attractive for the following reasons:
- • Real time quote
- • Relatively low commissions
- • Separation of the assets of the management company from the assets of the fund.
However, it is worth remembering some restrictions, such as legal restrictions on the purchase of shares of certain issuers for some investors.