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A strong but volatile start
2025 started off with sustained economic growth, but we are watching waning consumer confidence closely.
2025 started off with sustained economic growth, but we are watching waning consumer confidence closely.
02/07/2025
FUND COMMENTARY
By Kyle DeTullio, ETF Capital Markets Specialist | 02/18/2025
02/18/2025
Learn how ETFs may provide new opportunities for your client portfolios compared with mutual funds.
I'm Kyle DeTullio. I'm the ETF capital markets specialist here at Thrivent Asset Management.
What are ETFs, and what's their purpose in a portfolio?
So, exchange traded funds, or ETFs, are pooled investment vehicles that generally hold a collection of stocks, bonds or other securities, much like mutual funds. And just like mutual funds, ETFs come in many different styles and can help with diversification inside of client portfolios.
However, there are several key differences between ETFs and mutual funds. Notably, ETFs offer intraday liquidity. They can be bought and sold any time during the trading day, whereas mutual funds can only be bought and sold at net asset value after the markets have closed. Another difference is that the way in which ETFs are structured can also lead to greater tax efficiencies compared to similar strategies offered in the mutual fund wrapper. Lastly, ETFs can often also be used to lower cost to clients.
Can you describe ETF tax advantages?
The tax efficiency of the ETF structure is really one of the most important benefits. And the key to that tax efficiency comes from the way that ETF shares are created and redeemed. Unlike mutual funds which typically exchange cash for their shares, ETFs take in or deliver out the underlying securities in-kind in exchange for ETF shares.
Now, this in-kind creation redemption mechanism can lead to fewer realized gains within the ETF's portfolio, which can translate to lower capital gains distributions for clients. Now, investors can incur capital gains when they sell their ETF shares, but in-kind creation redemption means that they're not impacted, as they would be in a mutual fund by other investors selling their ETF shares.
What are the fee advantages of ETFs?
Most notably ETFs don't charge sales loads or 12 B1 fees. Additionally, most major brokerages no longer charge commissions on ETF trades, which has further reduced the total cost of ETF ownership.
What's the difference between passive and active ETFs?
So, passive ETFs are designed to follow the structure of a specified index. But actively managed ETFs are not constrained by predetermined rules of an index. Generally, they have a goal of outperforming a specified market index or other benchmark. As such, active ETFs can benefit from the ability to be more dynamic to changing markets and Thrivent Asset Management. We have more than 140 investment professionals researching various asset classes. Our fund managers are constantly using this research to evaluate portfolio exposures as market conditions change. This oversight helps influence the investments within our actively managed ETFs.
What's a misconception advisors have about ETFs?
I would say that the biggest misconception that financial advisors have has to do with ETF liquidity. Many financial advisors are more familiar with how stocks trade than how ETFs trade, and therefore they look at daily trading volumes as a measure of how liquid a particular ETF is. But daily trading volumes only touch on the tip of the ETF liquidity iceberg. Unlike stocks, the supply of ETF shares can be adjusted up or down to meet demand in the secondary market thanks to the creation redemption mechanism that we discussed. That creation redemption generally takes place in-kind means that ETFs are at least as liquid as their underlying securities.