ETFs vs No-Load Mutual Funds
by Marshall Blume
We are frequently asked about Exchange Traded Funds (ETFs). Indeed, ETFs are hot. In the past ten years, they have more than doubled their holdings of publicly traded stocks from 3.1 to 7.9 percent, but mutual funds still dominate.
PMA continues to evaluate ETFs, but so far has chosen not to use them. Rather, we have used no-load mutual funds – funds without a sales commission – for reasons detailed below. But at the macro level, you – like all of our clients – have trusted PMA to balance return with the risk required to achieve it. This has and will always drive our investment decisions.
We have chosen to pass on ETFs for two primary reasons. First, trading ETFs incur trading costs. Second, trading ETFs involves basis risk – the possibility, and indeed likelihood, that the price at which an ETF investor buys or sells differs from the underlying value of the ETF. In contrast, trading in no-load mutual funds incurs neither trading costs nor basis risk.