Can lower ETF costs, better tax efficiency, and greater flexibility explain why more retail investors are choosing ETFs?
Sam Adams recently joined a panel on ETFs at the US SIF Forum to discuss this trend. The conversation focused on the practical advantages that have made the ETF structure more attractive to retail investors and advisors.
Lower costs for investors
ETF costs are often lower because the structure can be more efficient than a traditional mutual fund.
Investors may also avoid the ticket charges that can apply when purchasing some mutual funds. Removing that transaction cost makes it easier for advisors and clients to access the strategy without an additional fee each time shares are purchased.
Greater ETF tax efficiency
ETF tax efficiency is another important advantage. The way ETFs are created and redeemed can help reduce capital gains distributions.
Capital gains distribution may create a tax bill even when an investor did not sell shares. Reducing those distributions can allow investors to keep more of their returns invested.
More flexibility throughout the day
Mutual funds are priced once at the end of the trading day. ETFs trade throughout the day like stocks.
Throughout-the-day trading gives advisors more flexibility when buying, selling, and rebalancing diversified portfolios. Investors can also see the current market price before placing a trade rather than waiting for an end-of-day fund price.
Responding to changing investor preferences
Vert converted its mutual fund to an ETF in 2023 because investor preferences had changed.
Retail investors and advisors were increasingly prioritizing lower ETF costs, greater tax efficiency, and more trading flexibility.
The investment objectives did not change. The ETF structure gave investors a different way to access the strategy, with the cost, tax, and trading features they increasingly preferred.
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Vert Asset Management is a registered investment adviser focusing on sustainable real estate investment that helps financial advisors build resilient, future-ready portfolios. We connect institutional-quality investments with the long-term goals of clients, focusing on both financial soundness and sustainability.
Investors should consult their investment professional prior to making an investment decision.
