Several mutual fund sponsors are asking the Securities and Exchange Commission to permit them to offer investors a class of fund shares that would trade continuously throughout the day and shave expenses significantly. Exchange-traded funds have been described as mutual funds on steroids. Previously, Gastineau directed new product development at the American Stock Exchange, which lists dozens of ETFs, including Spiders and Qubes. A typical ETF has just one shareholder, the trust depository that issues the tradable receipts. ETFs typically grow through low-cost exchanges of their receipts or shares for underlying stocks held by large institutional investors.
Mutual funds buy securities for cash, paying higher trading costs.
Most mutual fund investors pay expenses of 1 percent or more a year. Moreover, shares of exchange-traded funds, unlike mutual fund shares, are bought and sold in the open market. You don't face the prospect of unwanted capital gains, as when fellow mutual fund shareholders become skittish and dump their shares back onto the fund, forcing the fund manager to sell securities to raise cash. The Securities and Exchange Commission is considering a significant expansion of ETF regulations, including a rule that would overcome a major complaint against ETFs by long-term investors. Typically, ETFs do not reinvest dividends in a timely manner, which costs them slightly in total return performance matchups against comparable mutual funds.