The New York Stock Exchange yesterday released an investor primer on ETFs, "What You Should Know About Exchange Traded Funds," the sixth in its ongoing
"Informed Investor" series.
The primer notes that while ETFs charge lower fees than mutual funds, investors must pay brokerage commissions each time they buy or sell ETF shares, and that, in some cases, it could be less expensive for an investor to hold an index fund than an ETF. It also notes that newer ETFs to come to the market that track very small niches can be very volatile and charge relatively high fees.
"The initial appeal [of ETFs] was the ability to get broad diversification at a lower cost in a tax-efficient vehicle," Dan Culloton, an analyst with Morningstar, told The Wall Street Journal. "The further away you get from a diversified basket of securities to finely slice and dice segments of the market, the more you sacrifice the low cost and the tax efficiency."