Exchange Trade Funds (ETFs) can be useful tools for investors building their portfolios. A Vanguard commentary explores their role in portfolio construction and in providing market liquidity and market information.
Over the past decade, exchange traded funds (ETFs) have become popular among investors in building investment portfolios. Although sometimes portrayed as unique instruments, ETFs are overwhelmingly similar to managed funds, from both a regulatory and a structural standpoint.
Investors have also used ETFs in a manner similar to the way they frequently use managed funds, namely to create low-cost, broadly diversified investment portfolios, especially when implementing index-based strategies.
ETFs provide important benefits that stem from the way investors transact in fund shares. The secondary-market trading of ETFs is an additional source of intraday liquidity for market participants, and intraday market prices reflect valuable information about market conditions.