Understanding ETF Characteristics

Medium Passive Equity Investing Exchange-traded Funds

As an investment advisor, you are tasked with developing a passive equity investment strategy for a client who is risk-averse and prefers a low-cost approach. The client expresses interest in utilizing Exchange-Traded Funds (ETFs) to achieve market exposure. You explain the benefits and features of ETFs relative to traditional mutual funds.

Considering the characteristics of ETFs, which of the following statements is true concerning their structure and performance?

ETFs are traded throughout the day at fluctuating prices, similar to stocks, which may lead to deviations from NAV.

ETFs typically have higher expense ratios compared to actively managed mutual funds.

ETFs are required to distribute capital gains to shareholders at year-end, similar to traditional mutual funds.

Hint

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