Common ETF Misconceptions

Exchange traded funds are still relatively new to the market. As many investors are still growing in understanding of how these vehicles operate, a number of misconceptions have developed. Below we debunk some of the most common ETF myths.

ETFs are risky
The risk involved in an ETF lies in the holdings of the fund. If the fund consists of individual stocks with low risk, then the ETF has low risk. But if the underlying holdings are higher risk, then the ETF will have higher risk. Investors should investigate the stocks which constitute the fund in order to assess the risk of the fund.

ETFs with low volume lack liquidity
Investors should not label an ETF as illiquid because of low trading volume. The average daily volume (ADV) is only a small part of the liquidity picture of a fund. The majority of the liquidity of a fund is based on the liquidity of the underlying constituents in the fund.

ETFs are volatile
Just like the liquidity and risk of an ETF, volatility is dependent upon the individual stocks which constitute the fund. Being able to trade ETFs throughout the market day does not make ETFs volatile. If the constitutes are not volatile, the ETF should not be either.

ETFs are only for short term investors and day traders
Depending upon the product, ETFs can be a good investment for either short term or long term investment goals. Long term investors can benefit from ETFs low expense ratios which offset the trading commissions and spreads over time. The ETF is a unique investment vehicle in its design which can benefit investors with different.

ETF market is supersaturated
Currently there are approximately 1,500 ETF products; in comparison there are over 10,000 mutual funds. There is still ample room for this type of investment vehicle to grow. Funds will most likely grow with new asset classes, with more actively managed methodologies and with more accessible products.

ETFs are not for income investors
ETFs do pay dividends. If the stock within the ETF pays a dividend then so does the ETF. Some ETFs pay these immediately, some quarterly and some allow investors to opt to reinvest the dividend back into the fund for new shares. To find out how and if an ETF pays dividends, read through the fund's prospectus.
There are ETFs designed specifically for the income investor like our RDIV, the Oppenheimer Ultra-Dividend Revenue ETF.

ETFs are limiting
ETFs can actually give investors access to broad markets or precise exposures at a low cost. There are ETFs which track indices for broad exposure and ETFs which track a sector in the market for a more narrow focus. For example, OppenheimerFunds offers broad market exposure with our small, mid and large cap funds (RWJ, RWK, RWL) and a precise exposure to the financial sector with RWW. To learn more about the different categories of ETFs, see our page on Types of ETFs.

ETFs are not needed if a portfolio already has stocks
ETFs can give investors exposure to growing trends and can quickly add diversification to any portfolio. ETFs offer investors a unique investment vehicle which can offer, in addition to diversification, lower expense ratio, intraday trading, tax efficiency and transparency.

Investors need to perform due diligence for each ETF being considered to ensure it is the right investment for their portfolio. ETFs can be an ideal solution to adding diversification to any portfolio.

 

Holdings data reflects the accounting positions as of the date listed, and may not reflect any trades made on that date.

On December 2, 2015, OppenheimerFunds, Inc. acquired 100% of the stock interests of VTL Associates, LLC, the investment adviser to the Oppenheimer Revenue Weighted ETF Trust, formerly the RevenueShares ETF Trust (the “Trust”). As of that date, OppenheimerFunds Distributor, Inc. became the general distributor and principal underwriter for each series of the Trust.

An investment in the funds is subject to investment risk, including the possible loss of principal amount invested. Fund returns may not match the return of their respective Index, known as non-correlation risk, due to operating expenses incurred by the funds. The alternative weighting approach employed by the each Fund (i.e., using revenues as a weighting measure), while designed to enhance potential returns, may not produce the desired results. Because each fund is rebalanced quarterly, portfolio turnover may exceed 100%. The greater the portfolio turnover, the greater the transaction costs, which could have an adverse effect on Fund performance. The risks associated with each specific fund are detailed in the prospectus and could include factors such as increased volatility risk, small and medium capitalization stock risk, concentration risk, non-diversification risk, financials sector risk, American Depositary Receipt risk, currency exchange risk, foreign market risk, growth style investing risk, portfolio turnover risk, and/or special risks of exchange-traded funds.

The Fund’s per share net asset value or “NAV” is the value of one share of the Fund as calculated in accordance with the standard formula for valuing mutual fund shares. The NAV return is based on the NAV of the Fund and the market return is based on the market price per share of the Fund. The price used to calculate market return (“Market Price” or “MP”) is determined by using the midpoint between the highest bid and the lowest offer on the primary stock exchange on which the shares of the Fund are listed for trading when the fund’s NAV is calculated at market close. Market and NAV returns assume that dividends and capital gain distributions have been reinvested in the Fund at Market Price and NAV, respectively.) Returns less than one year are cumulative.

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