ETFs Also Lose Value in Quarter

They may be one of the investing world’s hot commodities, but exchange traded funds were as cold as the rest of the crowd in the first quarter.

All 10 of the largest ETFs lost value. The Nasdaq 100 Trust, which tracks an index weighted toward technology stocks, slumped hardest, sliding 8.4%.

Assets in the nation’s 152 stock and bond ETFs have swelled to about $224 billion, according to the Investment Company Institute, a mutual fund industry trade group. That’s still a pittance next to the $8 trillion in traditional funds, but it shows that ETFs have emerged as an alternative for index investing.

ETFs, which only track indexes and are not actively managed, differ from standard index mutual funds in several ways.

Typically, they carry lower expense ratios and are more tax-efficient, which can enhance their long-term returns. They trade all day at updated prices like stocks, rather than once a day like a regular fund, which can make them more flexible for investors.

However, because they are bought and sold like stocks, ETFs generally carry brokerage commissions, which can drive up costs for small investors and active traders. Many mutual funds, by contrast, are bought and sold directly through fund companies that charge no commissions.

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-- Josh Friedman