ETFs versus mutual funds

There are ten times as many exchange-traded funds that offer appealing results than mutual funds, investment strategist David Trainer recently told MarketWatch.

Trainer, who is also the managing partner of hedge fund adviser Novo Capital Management, LLC, stated that the performance granted by many actively-managed mutual funds do not make up for the higher expenses. Investors could just as easily invest in passively-managed exchange-traded funds (ETFs) that have low fees. Actively-managed funds are not superior in terms of the equities they pick or the returns they generate.

Trainer conducted a “bottom-up” analysis of funds that evaluated the securities held. His analysis utilized ratings of stocks provided by independent research firm New Constructs and also evaluated the total costs associated with investing in the funds. This research concluded that investors who chose to invest in ETFs instead of mutual funds have less need for concern as mutual funds have higher costs and a worse selection of stocks.

Mutual funds usually contend that they charge higher fees due to the benefits of actively managing stocks. However, Trainer’s research indicates that the stock selection is superior to using a passively managed index in only a few cases.

Mutual funds and ETFs are a few of many potential financial instruments that can be used by young investors to diversify their investments.

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