Why ETFs

Why do we think ETFs are the way to go?  Below you will find a list of the advantages of ETFs.  For more on why we prefer ETFs over traditional, actively managed mutual funds please see the post Active or Passive

An Exchange-Traded Fund (ETF) is essentially an index mutual fund that trades like a stock throughout the day.  ETFs bridge the gap between the diversification of a traditional mutual fund and the trading flexibility of an individual stock.  At Sustainable Investment Strategies we believe ETFs are the best investment option for our portfolios and our investing strategy.  ETFs provide:

• Transparency – Unlike traditional mutual funds ETFs must publish their holdings daily.  Therefore, we can look inside and see what securities are within the fund.

• Low Operating Expenses – since ETFs track an index they can keep fees down in two ways – limited trading and the fact that tracking an index requires little overhead (research personnel and research services) resulting in lower operating cost.

• Tax Efficiency – a typical actively managed mutual fund buys and sells securities and when the securities are sold for a capital gain the mutual fund is required to pass the capital gain on to investors. Since ETFs track indexes there is far less trading resulting in much smaller (if any) capital gains.

• Inter-Day Liquidity – unlike traditional mutual funds that price once a day when the market closes ETFs price throughout the day like a stock.  This inter-day trading feature of ETFs allows for trading with market, limit, and stop-loss orders lending to greater control in fast moving markets.

• Diversification – purchasing an ETF creates immediate diversification.  Each ETF holds multiple securities within both industries and asset categories.