The Markets April 26, 2012

White Paper Examines ETFs

A new white paper explores how exchange-traded funds (ETFs) are created, and takes an in-depth look at the potential risks and advantages.

Reported by

Rebecca Moore

Although increasingly popular, ETFs are not well understood by most investors. In the new white paper, “Examining Exchange-Traded Funds,” Arnerich Massena reviews the history and construction of ETFs, investigating the claims of tax efficiency, liquidity, transparency and cost.

At the start of calendar year 2000, there were just 30 ETFs registered with the U.S. Securities and Exchange Commission, but by February 2012, there were more than 1,400 registered, with another 900 applications pending. ETFs currently account for more than $1.2 trillion in assets in the U.S. and ETF assets are growing at a pace greatly exceeding that of traditional mutual funds.

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“In our view, exchange-traded funds may have their place in a particular portfolio, but that place is dependent on overall portfolio construction,” explains Tony Arnerich, CEO and CIO of Arnerich Massena and a co-author of the white paper. “Because ETFs have been aggressively marketed, it’s important for investors to be aware of not only the benefits, but the accompanying risks and complications, when considering ETF funds for their portfolios.”

A downloadable version of “Examining Exchange-Traded Funds” is available at https://www.am-a.com/company/research.htm.