Managed funds and exchange-traded funds (ETFs) are both popular investment vehicles that allow investors to diversify their portfolios and gain exposure to a range of assets. However, there are some key differences between the two.
Managed funds are actively managed by a professional portfolio manager or team. The portfolio manager makes investment decisions on behalf of the fund's investors, buying and selling securities with the aim of generating a return that outperforms the fund's benchmark index. Managed funds are priced once per day, and their performance is reported at the end of each trading day.
ETFs, on the other hand, are passive investment vehicles that track a specific market index or sector. They are designed to closely replicate the performance of the underlying index, with little to no active management. ETFs are traded on stock exchanges like individual stocks, and their prices fluctuate throughout the trading day based on supply and demand.
Here are some key differences between managed funds and ETFs:
Cost: ETFs are generally cheaper than managed funds, as they do not involve active management. They also tend to have lower fees and expenses than managed funds, as they are more efficient to operate.
Transparency: ETFs are more transparent than managed funds, as they disclose their holdings on a daily basis. Managed funds typically only disclose their holdings quarterly, which can make it more difficult for investors to track their investments.
Liquidity: ETFs are more liquid than managed funds, as they can be bought and sold throughout the trading day on a stock exchange. Managed funds are only priced once per day, and their shares can only be bought or sold at the end of the trading day.
Active management: Managed funds involve active management by a portfolio manager, which may lead to outperformance compared to passive ETFs. However, this also means that managed funds have higher fees and expenses.
In summary, managed funds and ETFs have their own unique advantages and disadvantages, and the best option for an investor will depend on their individual investment goals and preferences. Managed funds may be more appropriate for investors who are looking for active management and potential outperformance, while ETFs may be more appropriate for investors who are looking for low-cost, diversified exposure to a specific market or sector.
It is important to note that most actively managed funds do not consistently beat the market index.
Rick Maggi