ETFs Expand and Take Market Share from Mutual Funds/Mutual Fund Managers Are Forced to Change

One of the hottest things going in the investment world is the ETF, or Exchange-Traded Fund. ETFs are baskets of different stocks for sale under one ticker symbol. They were originally designed to compete with index mutual funds (commonly called “index funds;” index mutual funds are invested so as to represent the performance of the Standard & Poor’s 500, the NASDAQ 100 or other popular stock indexes). However, ETFs quickly evolved so that they now compete with mutual funds that invest in specific industrial sectors, and, more recently, they compete with managed funds. There are, however, important differences between ETFs and mutual funds. The primary difference lies in the way they are priced. Mutual funds are traded and priced only once daily. ETFs act like stocks, fluctuating in price all day long as the underlying values of the stocks they hold fluctuate. ETFs tend to have low fee structures and offer quick, easy access to widely diversified baskets of stocks.

Since there are many smaller indexes that track specific business sectors such as retailing or energy (these indexes are maintained by investment banks and analysts), ETFs can easily be designed to be sector-oriented by following a specific industrial sector’s index.

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ETFs Expand and Take Market Share from Mutual Funds/Mutual Fund Managers Are Forced to Change, Business and Industry Trends Analysis

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