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By Sandra Testani - October 19, 2018
Whether you're planning a trip to a far-away country, trying a new sport or learning a new musical instrument, you probably tried to learn something about it before starting on your endeavor.
ETFs are no different. Although you may have a vague idea of what they are or how they work, the market has grown and changed significantly since the introduction of the first ETF in 1993. That's why we think it makes sense to learn about what ETFs offer—to help you make better-informed decisions about how and when to use them in portfolios.
Why have investors embraced ETFs? Probably because they feature some attractive attributes:
The first ETF tracked the S&P 500® Index. Since then, the number and variety of ETFs has ballooned, with more than 2,100 covering equity and fixed income markets around the world. The amount of investor assets has also grown substantially, from less than $500 billion in 2005 to more than $5 trillion as of July 2018.* Early ETFs—which still claim most ETF assets—tracked market-weighted equity indices such as the S&P 500 Index and the Russell 1000® Index.
As investors embrace ETFs, asset managers respond by expanding their menus. Today, ETFs span many different asset classes and investment styles. They can also be used in multiple ways and combined with mutual funds and individual securities to build diversified portfolios. Types of ETFs include:
How do ETFs stack up against mutual funds? Like mutual funds, ETFs are baskets or pools of individual securities, such as stocks or bonds. And like mutual funds, ETFs are structured as open-end investment companies. Both ETFs and mutual funds post net asset values (NAVs) of their underlying securities at the end of each trading day.
However, there are key differences between the two vehicles.
Our recent publication, "A Guide to Getting Started with ETFs," covers:
Introduce the basics of ETFs to your clients: their history, how they work, how they compare with mutual funds, and more.
Explore our offering of Intelligent Beta and Actively Managed ETFs.
Tax-loss harvesting may help ease the sting of hefty tax bills when used in concert with an overall investment plan.
Our ETF experts provide timely market updates in the ETF Industry Update Series.
Our experts share ETF best practices, product knowledge and investing insights in our Exploring ETFs Monthly Call Series.
When adding alternatives to a portfolio, the allocation source matters. These
tips can help you determine where to reduce other allocations in favor of liquid alternatives.
ETFs have two features that reduce their exposure to events that trigger capital gains, enabling ETFs to generate less tax liability.
Learn why we believe systematic quality and fundamentally focused growth strategies achieve better exposure to growth.
* Source: Strategic Insight (SIMFUND)
ETF shares may be bought or sold throughout the day at their market price, not their Net Asset Value (NAV), on the exchange on which they are listed. Shares of ETFs are tradable on secondary markets and may trade either at a premium or a discount to their NAV on the secondary market.
ETFs trade like stocks, fluctuate in market value and may trade at prices above or below the ETF's net asset value. Brokerage commissions and ETF expenses will reduce returns.
Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.
The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.