Exchange-Traded Funds (ETFs) have existed as we know them since 1993, when State Street Global Advisors launched the S&P 500 Trust ETF (SPY), still one of the most widely traded ETFs today.  According to the Investment Company Institute website, there was roughly $3.6 Trillion of total ETF AUM as of March 30, 2020.  Despite their widespread adoption and given the vast array of tools that facilitate portfolio rebalancing for investors and advisors, there are still many potential pitfalls when executing ETF trades that we would like to help you avoid. 

With the goal of providing the best outcomes possible, we have created a collection of ETF trading do’s and don’ts.  And while we understand it can be impractical or impossible to follow all of them all of the time, implementing as many as you can may lead to more optimal results for your clients.  For advisors who do not have the capacity to account for all of these suggestions, outsourcing your trading operations or using open-end mutual funds may be prudent and effective ways to implement client portfolios.

DON’T select ETFs simply based on one characteristic such as the exposure they provide (e.g. the index/sector/factor they track) or the reputation of its sponsor / manager alone.

• DO select ETFs that provide the best aggregate of factors including exposure, implicit and explicit costs, reputation of the sponsor, among others.