The Simple, Low-Cost Alternative To Mutual Funds
As the gains, and it was of little concern that investors had to pay 1% to 3% in annual fees for the high-priced salaries paid out to many managers.surged ever higher in the 1990s, many investors were content to let managers find the right for them. After all, the nation's leading were racking up stellar
But in the next decade, parking yourin a no longer seemed such a wise move -- many of the most popular failed to even keep up with their benchmarks (such as the S&P 500 or the ). Add to that the tacked on onerous management fees.
Investors have had enough, and they have been pulling out of mutual $11.6 trillion in at the end of 2011, investors took more than $125 billion out of stock-focused mutual assets in 2012, according to the Company Institute (ICI).steadily over the past five years. In fact, with
These fund manager. Instead, are generally "passive," which means they own a select group of (or ) and then hold them for a very long time. That means lower trading costs and very little management , which adds up to much lower annual expenses., which first appeared roughly 20 years ago, allow you to target specific angles such as gold, energy, even foreign countries. Yet they do so without the active hand of a high-priced
For example, the Fidelity Large Cap B charges 2.04% in annual expenses. The owns a range of blue chip such as Apple (Nasdaq: AAPL), JP Morgan (NYSE: JPM) and Chevron (NYSE: CVX). In contrast, the SPDR S&P 500 (NYSE: SPY) owns a very similar basket of stocks and charges just 0.09% in annual expenses. In effect, that Fidelity would have to generate annual returns of at least 2% just to deliver the same net-of-fees result as the .
year in 2008, when investors poured $169 billion into them. Most of the went straight into ETFs that owned U.S. stocks. Fast-forward to 2012, and times have surely changed. ETFs received a record $191 billion last year, though the bulk of that was earmarked for ETFs, international stocks and sector-focused . In fact, the amount of tied up in ETFs now exceeds $1.35 trillion, more than double the amount seen at the end of 2008.had their first breakout
It should come as no surprise that Vanguard, which was known for very low expense loads in mutual terms of stock-and-bond ETF assets under management, well ahead of traditional retirement firms such as Fidelity and T. Rowe Price.has sought to become a leading player in ETFs. Indeed Vanguard is now the industry's third-largest in
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Barclays' group of iShares remains the top dog, with roughly 40% market share, while State Street Global , with its pioneering SPDRs program, controls roughly one-quarter of the . In effect, Barclays, State Street and Vanguard now control more than 80% of this . Smaller rivals such as Wisdom Tree, Van Eck, PIMCO and Invesco's PowerShares division continue to try to take market share from the bigger players in 2013 with offerings.
Where's the action right now? Well, the top three most popularin 2012 (in terms of new assets gathered) were the Vanguard (NYSE: VWO), the iShares iBoxx $ Corp. (NYSE: LQD) and the iShares MSCI (NYSE: EEM).
These bid/ask spread) is narrow, usually just a penny. Conversely, there are now hundreds of smaller ETFs that don't see as much interest and as a result often sport wider bid/ask spreads that can eat into your profits. As a good rule of thumb, focus on ETFs that trade at least 100,000 shares daily.are heavily traded, which means the gap between the price you would pay to buy them and the price you would receive when you sell them (known as the