Investment executive Noah Hamman takes on some popular ETF (that’s short for Exchange Traded Fund) myths in a recent column. While the ETF structure can frequently lend itself to lower costs, Noah warns that it’s unwise to assume that ETFs always have the low-cost advantage over mutual funds and other investments.
Here’s his take on the subject:
Myth: “ETFs are low-cost.”
Reality: “On the contrary, ETFs are investment vehicles that can carry low, high or even performance based fees.”
Noah Hamman, CEO AdvisorShares, “Watch Out For Fake News,” Investment Advisor, June 2017
Don’t assume that ETFs are always low-cost, or that mutual funds are high cost. Each fund is different, and costs often depend on the assets in the fund (for example, U.S. large company stocks vs. emerging market stocks), whether the fund is actively or passively managed, and other criteria.
And while fees are obviously important, what really matters is whether the fund meets your investment objectives and risk parameters, and provides the performance benefits you’re seeking after all the fees have been paid (keep in mind that Morningstar and other data sources show performance net, or after, fees).