ETFs vs Pooled Investments
Pooled investment funds aggregate many individual investments into one large investment, allowing investors to benefit from economies of scale. This allows individual investors to gain wide exposure by bundling securities together and managers benefit from decreased transaction costs through large transactions with pooled capital. Mutual funds, hedge funds, ETFs and pension funds are all examples of pooled investments.
The pooled fund is professionally managed by experienced financial professionals who try to deliver the highest potential return for their investors. The most common pooled investment fund is a mutual fund, which is actively managed and contains a large number of securities.
Unlike mutual funds, ETFs can be traded on the stock market like shares but mutual funds can only be purchased after the market shuts, based on the calculated price. As a result,, EtFs are viewed as more liquid than mutual funds. ETFs are also passively managed, meaning that their performance is pegged to a specific market index. Some people prefer mutual funds because they are actively managed and investors can rely on the professional manager to build a sound portfolio, rather than following a market index.
Mutual funds are known for having higher fees and expenses than ETFs because of the higher costs associated with managing an active fund such as manpower and trading fees. ETFs on the other hand are passive investments which require less rebalancing and less labor hours.
ETFs offer tax advantages to investors too since passively managed portfolios realize fewer capital gains than actively managed mutual funds.