Exchange-Traded Funds
Revisited
Research Paper, August 2006

Since their introduction, exchange-traded funds (ETFs) have evolved from esoteric instruments with limited appeal to increasingly viable alternatives to index mutual funds. Collectively, the attractiveness of ETFs continues to come primarily from their low cost, perceived tax efficiency and superior flexibility in trading terms. Transaction pricing for ETFs has also improved to the point of competitiveness with open-end mutual funds in many cases. These factors are especially true for short-term traders; however, long-term investors may find little or no incremental advantages to utilizing ETFs rather than traditional mutual funds.Although the gap has narrowed over the past few years,our analysis indicates that for long-term investors, mutual funds still appear to provide a superior implementation alternative to ETFs.

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