Assessing the Truth About ETFs

John is considering allocating part of his investment portfolio into Exchange-Traded Funds (ETFs) to gain exposure to U.S. large-cap equities. He is particularly interested in understanding the implications of tracking error, management fees, and tax efficiency associated with ETFs compared to mutual funds. After conducting his research, John encounters the following statements regarding ETFs:

1. ETFs typically have higher management fees than actively managed mutual funds.

2. Due to their structure, ETFs generally provide better tax efficiency than mutual funds.

3. The tracking error of an ETF represents the deviation of the ETF’s performance from its benchmark indexes.

Which of the above statements is true regarding Exchange-Traded Funds?