ETFs vs. Index Funds: What’s The Difference?

When categorizing various investment vehicles, most investors tend to think of mutual funds and exchange-traded funds (ETFs) as polar opposites. Mutual funds are associated with active management, with a team of analysts and managers seeking to generate alpha by identifying undervalued securities from a relevant universe of stocks and bonds. ETFs, on the other hand, connote a passive investment strategy, products that seek to replicate the performance of a certain benchmark instead of seeking to beat it. For those who believe that active management (or at least certain active managers) add value, mutual funds may be preferred. For those who believe that it is impossible to consistently outperform markets, the lower-expense beta offered by ETFs are more attractive [see Five Advantages of ETFs]. While these classifications of mutual funds and ETFs are generally true–most mutual funds are actively-managed, and more expensive than passively-indexed ETFs–they certainly aren’t hard and fast rules of [...] Click here to read the original article on ETFdb.com. Related Stories: Index Funds vs. ETFs: Which Is Right for You? ETFs vs. Mutual Funds: Breaking Down Expense Ratios Five Advantages of ETFs vs. Mutual Funds