ETFs Versus Mutual Funds
ETFs offer several potential advantages over mutual funds. One is transparency. "You know your holdings each day," McRedmond says. In contrast, the holdings within most mutual funds typically are disclosed on a quarterly basis. Many ETF investors found this information critical during the financial crisis in 2008-2009, as they could quickly determine their exposure to companies in trouble -- say, AIG.
Also, ETFs can be bought or sold throughout the day, while transactions in money market funds are completed at the end of the day. Often, it's during the last hour or so of the day that markets run or drop, Burns says. "With market volatility, transacting at 10 A.M. has some value."
That's not to say that ETFs have no shortcomings. When buying or selling an ETF, you'll typically incur a commission, which wouldn't come into play in a similar mutual fund transaction, McRedmond says. Even so, it's possible to find some brokerage firms that charge less than $10 per trade, as well as some offering zero-commission ETF trades.
In addition, a few ETFs are only thinly traded, Burns says. A corporate treasurer or CFO would want to check that a planned trade doesn't come close to (or exceed) the average transaction daily volume of the ETF they're considering.
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