Thursday, September
9 2010
|
|
|
|
|
|
|
|
|
|
Thursday, September
9 2010
|
|
||||||
|
|
|
|
|||||
|
|
|
|
|
||||
|
| |||||||||||||||
|
Announcing a new acquisition!!
|
What's New at Forte for the year 2009 August 2009 - Understanding Actively Managed Exchange Traded Funds By Forte News Department With so many investors and their advisors
questioning traditional market thinking about index-based investing, exchange
traded funds (ETFs) are starting to move beyond their traditional passive,
index territory into more active management. To some, it’s a fad. To others, it’s a serious
threat to the territory traditionally held by mutual funds. Yet one thing so far is clear. Many of the
biggest names in the mutual fund world are now seeking permission from the
Securities and Exchange Commission to offer actively managed ETFs. For advice on this new generation of
securities, investors should speak with a qualified financial advisor such as a
Certified Financial Planner™ professional. ETFs are baskets of securities that trade like
stocks and until recently have almost always tracked market indexes like the
Standard & Poor’s 500. ETFs have certain advantages over mutual funds –
they generally have offered lower fees and tax advantages than mutual funds, and
clearer tracking of their underlying investments because they are require to
make that disclosure daily. Here’s what’s changing. After the ETF industry won
regulatory approval for actively managed funds after a 10-year effort, and so
the first actively managed bond ETF surfaced last spring with a few more based
on stocks. What does active management mean? That managers have more leeway to
choose the underlying investments within a fund, while indexed funds require
holdings to mirror its chosen index. What will make things interesting in the new ETF
world is the continuing requirement that these active managers disclose every
step they make. This is why active management is a challenge, because in the
traditional mutual fund world, managers don’t have competitors looking over
their shoulders when they try to build or exit positions. In the ETF world,
disclosure is made on a daily basis, so managers have to worry about
competitors mimicking their strategy and foiling their efforts to get the best
price for their investments. Some experts believe that as this category develops,
the first baby steps for investing will go toward major stocks that are
generally less volatile and therefore tougher for competitors to mimic. Others
believe that actively managed ETFs will operate with a series of managers whose
moves would be tougher to spot on any particular ETF’s disclosure list. However actively managed ETFs evolve, it
makes sense to ask the following questions: How will these investments fit into my overall
portfolio? It makes sense to look at
how ETFs fit into one’s overall portfolio mix given particular retirement and
investment objectives as well as tax considerations. How about fees? One of the chief advantages of
index-based ETFs was low expense ratios. Actively managed funds generally do
cost more. Try and get an idea of what the fee structure will be before you
invest, and compare them to similar investments in the mutual fund arena. What are the tax issues? Active ETFs have better tax advantages because the fund manager
can sell the lowest-basis stocks via in-kind stock transfers through the
creation and redemption process. This helps systematically reduce the tax
exposure for investors. What about the track record? This is a very good
point, because as a relatively new investment category, it’s important to
realize that these new categories of ETFs won’t have terribly long investment
records to compare to other investments. Do your homework first. August 2009 — This column is produced
by the Financial Planning Association, the membership organization for the
financial planning community, and is provided by David W. Henion, CPA, a local
member of FPA. | ||||||||||||||
|
Copyright
© Forte´ Capital LLC. Do not duplicate
or redistribute the content of this website. |
||||||||