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.
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The sole purpose of this document is to inform, and it is not intended to be an offer or solicitation to purchase or sell any security, or investment or service. Investments mentioned in this document may not be suitable for investors. Before making any investment, each investor should carefully consider the risks associated with the investment and make a determination based on the investor’s own particular circumstances, that the investment is consistent with the investor’s investment objectives. Information in this document was prepared by East Bay Investment Solutions. Although information in this document has been obtained from sources believed to be reliable, East Bay Investment Solutions does not guarantee its accuracy, completeness, or reliability and are not responsible or liable for any direct, indirect or consequential losses from its use. Any such information may be incomplete or condensed and is subject to change without notice.
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