A global recession and other setbacks have not quelled public appetite for exchange-traded funds (ETFs), an innovative market tool that BlackRock iShares uses to help investors manage risks, control expenses and reduce tax liabilities.
“The ETF market has been robust since 1999,” guest speaker David Kimerling said Feb. 7, 2011, during a financial services workshop organized by Thunderbird Professor F. John Mathis, Ph.D.
Like the name suggests, ETFs are investment funds traded on stock exchanges. The funds usually track indexes such as the Dow Jones, which means the fund value goes up or down as the index goes up or down. Kimerling, Vice President and Business Development Officer of iShares, said four main advantages set ETFs apart from mutual funds and other investment tools.
The first ETF advantage relates to transparency, which helps investors manage risk. Kimerling said many mutual fund owners do not know what they own until the next quarter, due to reporting standards.
“In many cases, you will see your holdings in a mutual fund about a quarter later when you get your report,” he said. “With all of our iShares products, you can go to our website any day of the week and know exactly what you own up until the previous day.”
ETF investors also have freedom to respond immediately to market trends.
“Because they have trading throughout the day on the exchange, they can be easier to get in and out of — and usually more liquid than a mutual fund,” Kimerling said.
Another advantage of the ETF innovation is the way buyers and sellers work through brokers in a manner that avoids capital gains. “The capital gains are generated inside the funds without selling,” Kimerling said. “Investors avoid phantom gains, resulting in reduced tax liability.”
Kimerling said the ETF model also produces fewer internal fees than other types of funds. “ETFs can save money on expenses,” he said.
Kimerling acknowledged, however, that ETFs are not ideal for every situation. “Because they are bought and sold through brokers or financial advisers, you have to pay a commission or fee to buy and sell them,” Kimerling said. “With small purchases or with systematic investment programs that you do once a month or once a week, it might be difficult to use an ETF.”
|Exchange-traded Funds 101: David Kimerling, Vice President and Business Development Officer of iShares at BlackRock, describes exchange-traded funds (ETF) Feb. 7, 2011, at Thunderbird School of Global Management in Glendale, Arizona. View the video on YouTube or on China’s www.tudou.com (2:56).|