Investors looking to avoid any future mutual fund fallout might prefer to invest in exchange-traded funds (ETFs). As the name suggests, these are funds that trade on an exchange, like stocks. ETF prices are updated with each trade, throughout the day, so they are unlikely to be involved in the questionable practices with which many mutual funds have been charged. With ETFs, investors can see what’s being done.
ETFs are index funds, meaning that they track a particular index. Because the managers are not involved in stock-picking, index funds tend to have low costs and that’s especially true for index ETFs. The average expense ratio for ETFs is 0.47 percent, compared with an average of 0.90 percent for index equity mutual funds, according to Morningstar Inc., Chicago. For all types of equity mutual funds, the average expense ratio is over 1.5 percent.
Vanguard, which is known as a low-cost sponsor of mutual funds, recently introduced 14 new “VIPER” ETFs, bringing the total to 16, with six more expected to be launched this year. The Vanguard entries, like many ETFs, trade on the American Stock Exchange. Some VIPERS track certain asset classes, such as small-company growth stocks, while others follow specific industries, such as health care or information technology.
