ETF Advantages and Disadvantages

Like any type of investment, there are positive and negative aspects to  ETFs:

The Advantages

  • Diversification: ETFs contain a group of stocks, usually a known index, so with one share of an ETF an investor holds stock in many companies.  ETFs cover a variety of indices, giving each investor the ability to choose the area in which he/she wishes to invest. The diversification also reduces the cost for an investor, since buying an ETF share is far cheaper than buying each stock individually.
  • Lower expense ratio: Many ETFs have low expense ratios and the benefits of low turnover and diversification. It is important to note ETFs are traded through brokerage firms and incur commission charges.  An investor's rule of thumb for ETF investing is to invest in increments of $1000 or more, and use a low-cost brokerage to reduce these commission fees.
  • Intraday trading: ETFs trade just like stocks so they trade during the day closer to their net asset value (NAV) (add hyperlink to glossary).  
  • Tax efficiency: First, because there is typically low turnover in ETFs, they accrue less capital gains annually as opposed to an actively managed mutual fund. Second, due to the way ETFs are created and redeemed, the ETF does not incur the same type of capital gains as a mutual fund. While both vehicles incur capital gains when an investment is sold at a higher price, the mutual fund must incur additional capital gains throughout the year when certain positions are sold and trimmed.  These sales accrue capital gains for the fund.  
  • Transparency: By law mutual funds only have to disclose their holdings quarterly.  The nature of the ETF allows investors to see the full holdings of the ETF on a daily basis for almost all ETFs.

 

The Disadvantages

  • Trading fees: Every time an investor places an order for the purchase or sale of an ETF, he/she will need to pay a trading fee, just like when a stock is traded.
  • Liquidity: ETFs are typically known for their liquidity. To make sure this is the case, an investor should be sure there is not a large spread (greater than 4%) between the bid and ask of the ETF in relation to market's movement over a week's or month's time. 
  • Dollar cost averaging: Those wanting to invest in ETFs are best off doing so in lump sums as opposed to dollar cost averaging to avoid multiple broker fees.

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.

STANDARD & POOR'S and S&P are registered trademarks of Standard & Poor's Financial Services LLC ("S&P") and have been licensed for use by VTL Associates, LLC, Fund Advisor. No financial product offered by VTL Associates, LLC, Fund Advisor or its affiliates is sponsored, endorsed, sold or promoted by S&P or its affiliates, and S&P and its affiliates make no representation, warranty or condition regarding the advisability of buying, selling or holding units/shares in such products.