From the August 2008 issue of Investment Advisor • Subscribe!

August 1, 2008

Ups & Downs of ETFs

State Street Global Advisors and Knowledge@Wharton, the online business journal of The Wharton School, released the results of a joint survey of investment professionals exploring the impact of exchange-traded products on the financial advisory business. Two-thirds of respondents identified exchange-traded funds (ETFs) as the most innovative investment vehicle of the last two decades, and 60% reported that ETFs "have fundamentally changed the way they construct investment portfolios."

The most appealing characteristics of ETFs to advisors are low cost, liquidity, intraday trading, tax efficiency, and investment style purity. "In fact, the quicker an advisor has adopted a fee-only model, the more natural it is for that advisor to use an ETF," Tony Rochte, senior managing director at State Street Global Advisors says.

On the downside of ETFs, 69% of the advisors cited "unknown/untested indexes and/or portfolio methodologies" or "overwhelming number of choices."

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