Exchange-traded funds or simply ETFs are popular for offering consumers a considerable amount of cost savings as compared to mutual funds. But that does not mean that mutual funds are losing the competition against ETFs. Each year, millions of investors choose mutual funds because of the market’s extent. But lately, the ETFs market has seen a consistent rise in interest from new investors who have discovered it as a way to save a huge amount in both fees and taxes. ETF news has proved to be a gateway to everything there is to know about ETFs for investors looking to diversify their portfolios and has been a contributing factor in its rising popularity.
Similarities between mutual and exchange-traded funds
If you do not keep a track of ETF news then you might not know about the following similarities between ETFs and mutual funds;
- To ensure that the investment objectives are met, the portfolio in case of both funds is monitored by a fund manager. A fund manager is also responsible for rebalancing an investor’s portfolio.
- By investing in either mutual or exchange-traded funds, money is pooled into a collection of securities. Instead of buying every individual stock by yourself, these funds allow investors to own shares in a range of companies.
- Expense ratio has a common meaning in mutual as well as exchange-traded funds. The expense ratio is a portion of investment paid to the fund company.
- Both funds can outperform the market through active management or track market index. There are more actively managed mutual funds than there are actively managed ETFs.
Contrasting qualities of ETFs and mutual funds
Many cost-conscious investors who wish to hold onto their investments for a longer period often pick ETFs instead of mutual funds and stay ahead of the market trends with ETF news.
Following are a few differences between the two funds to get a clear idea of what works better for you;
Keeping up with ETF news prepares investors for any sort of market fluctuations in the prices of ETFs. ETF prices vary daily concerning the overall market condition. But mutual funds are priced only once per day and that price is determined by the net asset value.
ETFs are considered more tax-saving than mutual funds because investors only face tax implications if they choose to sell shares that they own. But mutual fund companies work by a different rule according to which all shareholders have to pay capital gains taxes when cash outflows are more than inflows for a particular mutual fund.
In the case of minimum investment, ETFs require the price of one share. But mutual funds’ minimum investments could range anywhere between $1 and $5000.
Investors are charged by brokers the standard stock trade commission for ETF buy/sell. But mutual fund companies usually do not charge such a commission for buying or selling shares to their investors.
Investors can buy or sell their preferred ETFs on an exchange through a broker just like any other stock. The process of buying is simple enough for first-timers who need to follow exchanges that match buyers and sellers. However, mutual funds are bought directly from a fund company.
Best performing ETFs of 2021
There are more than 1800 ETFs available in the market these days and nearly 200 new ETFs join this list each year. That is why choosing the best EFTs can be difficult but the following is a list of high-performance ETFs of 2021;
- ARK Innovation ETF (ARKK): Since the last year, this ETF has dominated both the market and the news with a year-end return of 150%. Its average daily trade is north of $1.8 billion.
- Dimensional International Core Equity Market ETF (DFAI): With a total of $265 million assets under management and a 0.18% expense ratio, this international ETF is currently one of the most anticipated in the market.
- Global X Emerging Markets Bond ETF (EMBD): This international fixed income ETF has undercut the competition since its release in 2020 as a solid option for broad exposure. It has amassed over $90 million in AUM within 9 months.
Reasons to choose ETFs
- If you are an active trader who likes to utilise margin in your investment strategies by putting limit orders then ETFs are a better match for your needs. These trades also offer stop-limit orders like stocks.
- As mentioned earlier, investors who deem tax efficiency critical for their trading strategy tend to prefer exchange-traded funds rather than mutual funds. Investing in a taxable brokerage account where investors get more control over capital gain is more profitable if ETFs are involved.
- To gain exposure to a particular niche market without putting your hard-earned money on the line then exchange-traded funds are a sensible approach as they provided investors with low-cost exposure without the need of researching individual companies involved.