Assessing the Role of ETFs in Passive Equity Investing

In recent years, Exchange-Traded Funds (ETFs) have gained significant attention as a vehicle for passive equity investing. As an investment manager, you are tasked with assessing the role of ETFs in an investment strategy focused on diversification, cost efficiency, and long-term performance.

Discuss the advantages and disadvantages of using ETFs within a passive investment strategy. Include in your discussion considerations related to liquidity, tracking error, tax implications, and overall market impact. Provide examples to illustrate your analysis and recommend best practices for investors considering ETFs as part of their equity portfolio management.