What Lies Beneath: Understanding the Structure and Costs in ETFs

Understanding the Structure and Costs in ETFs

This whitepaper takes a deeper look at the underlying components that can influence the performance of exchange-traded funds (ETFs).

The ETF industry is booming with forecasts that total assets in the category will reach $5 trillion by 2020. However, many of the well-known benefits of ETFs, including diversification, lower costs, flexibility and tax efficiency, tend to overshadow the complex features and pricing of these products.

What Lies Beneath: Understanding the Structure and Costs of ETFs, outlines a number of components that impact ETF pricing, and identifies red flags that advisors should keep in mind when evaluating the true cost of ETF ownership for their clients. The report highlights five main factors to consider when evaluating the true cost of ETFs, including:

  • Expense Ratios—Nuances in certain types of ETFs
  • The Bid-Ask Spread—The important components that create it
  • Liquidity—The intraday liquidity ETFs offer
  • Tracking Error—The risk that an ETF’s price might not match the fund’s benchmark

Audience: Advisors, Broker-Dealers, Investment Managers, Registered Investment Advisors, Wealth Managers