What Lies Beneath: Understanding the Structure and Costs in ETFs

BNY Mellon's Pershing

10/19/2015

What Lies Beneath: 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

BNY Mellon's Pershing

BNY Mellon's Pershing

BNY Mellon’s Pershing and its affiliates provide a comprehensive network of global financial business solutions to advisors, broker-dealers, family offices, hedge fund and ’40 Act fund managers, registered investment advisor firms and wealth managers. Many of the world’s most sophisticated and successful financial services firms rely on Pershing for clearing and custody; investment, wealth and retirement solutions; technology and enterprise data management; trading services; prime brokerage and business consulting.

Pershing helps clients improve profitability and drive growth, create capacity and efficiency, attract and retain talent, and manage risk and regulation. With a network of offices worldwide, Pershing provides business-to-business solutions to clients representing approximately 7 million investor accounts globally. Pershing LLC (member FINRA, NYSE, SIPC) is a BNY Mellon company. 

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