Basics & Benefits of ETFs : Benefits of ETFs

Here are a few of the benefits and reasons why more Advisors and Investors are investing more and more into ETFs:

  • ETFs generally have significantly lower annual costs (MERs) than traditional mutual fund products. With lower trading and turnover within the holdings of the portfolio, trading expenses are also kept at lower levels. The lower total costs let investors keep more of the returns they have earned which over the long-term can make a significant difference to total returns – and the real wealth of investors' portfolios.
  • ETFs can offer investors broad diversification through a single product choice instead of taking company specific risk with individual stocks and bonds.
  • ETFs offer greater transparency than mutual funds, as they publish holdings on a daily basis and knowledge that a fixed rules based index or strategy will be free from "style drift", "cash drags" and other emotional variations over the long-term.
  • ETFs also offer the trading flexibility of stocks and can be bought or sold throughout the trading day at intraday market prices. Limit Orders, Good until Cancel Orders and Stop-Loss Orders can be used on ETFs to increase trading accuracy – without having to follow the minute by minute moves of the market.
  • ETFs offer improved tax efficiency over traditional mutual fund products due to their structure for two reasons:
    1. Generally lower Turnover creates lower realized capital gains/losses which have to be passed through to shareholders at the end of each calendar year
    2. Role of Designated Brokers acting as an intermediary in the creation and redemption of ETF shares means existing investors are not impacted by such activity.

Comparing Claymore ETFs to Other Investment Solutions

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Comparing Claymore ETFs to Other Investment Solutions
Claymore ETFs Common Stock Mutual Funds Closed-End Funds
Intraday Liquidity
Portfolio Transparency
Tax Efficient
Diversification
Low Expenses    
Professional Management
Fully Invested  
Reinvestment Option  

Some Risks Associated with ETFs

Below is a list of some risks associated with ETF investing which are typically described in the ETFs prospectus:

  • Market Risk
  • Tracking Error
  • Trading at a discount to NAV
  • Foreign exchange risk
  • Liquidity Risk

 

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