by WWM | Nov 28, 2018 | Exchange Traded Funds
To date, we have focussed on passively managed exchange traded funds (ETFs).
But ETFs may also be actively managed.
A relatively new development versus actively managed mutual funds. And not much different in how they are run. Most of the issues, for and against, equally apply to both types of funds.
Actively Managed ETFs
The first actively managed ETFs only came into existence in 2007. You might read elsewhere 2008. That is because the initial ETF from 2007 failed.
According to the 2018 Investment Company Fact Book, at the end of 2017 there were 1832 ETFs with total assets of USD 3400 billion. Of those, only 194 were actively managed ETFs with assets of USD 45 billion.
Not many to choose from and relatively little in the way of assets.
But as they are marketed, we will spend a bit of time on this category of ETF.
Like actively managed mutual funds, these ETFs have a management team making decisions on portfolio holdings.
As with passive ETFs, there should be a benchmark index targeted by the active ETF. However, the active managers have significant leeway in which to choose specific investments. Managers may engage in market-timing activities, alter sector allocations, or even select investments that are outside the scope of the tracking benchmark.
In a passive ETF, investors have a good idea as to the ETF portfolio. In an active ETF, the actual portfolio may deviate significantly from the target benchmark.
Advantages of Actively Managed ETFs
There are a few perceived advantages of actively managed ETFs versus both actively managed open-ended mutual funds and passively managed ETFs.
Same ETF Advantages Over Mutual Funds
The potential advantages over actively managed open-ended mutual funds mirror the general perceived advantages of ETFs over funds.
The absence of loads or sales charges; the ability to buy and sell continuously during exchange trading hours; (normally) increased liquidity; generally lower total expense ratios; possible tax efficiencies depending on jurisdiction.
Please review previous posts for more detailed information on potential ETF advantages relating to trading abilities, annual expense ratios, and transaction costs.
Improved Transparency
Another major perceived advantage is increased transparency.
In investing, transparency is the level and availability of relevant information in order for investors to make informed investment decisions. It also refers to the timeliness of the information as data must be timely to have any relevance.
In most countries, mutual funds are required to disclose their holdings periodically. This may be quarterly, semi-annually, and/or annually.
What is held between reporting dates may be difficult to discern.
Exacerbating matters is that there is also usually a lag between period end and disclosure dates to shareholders. For example, there may be a requirement that the fund reports to its shareholders no later than 60 days from period end. That makes funds in many locations less than transparent as to their holdings.
Lack of transparency may cause problems for investors in creating efficient portfolios.
It also promotes activities by fund managers that are potentially detrimental to investors. These include window dressing, index hugging, and investment style departures.
With actively managed ETFs, transparency is greatly improved.
In many jurisdictions, actively managed ETFs must disclose their holdings on a daily basis or better. As a result, shareholders know what their investments contain and can better allocate their capital.
That said, you still need to watch for deviations from stated investment objectives in actively managed ETFs. If the active manager deviates from the stated style, you may find your overall portfolio is not what you expected. Perhaps too much of one investment or too little of another. As well, the actively managed ETF you purchased may shift its own risk-return profile over time.
Active Over Passive
A potential advantage of actively managed ETFs is that they are actively managed.
While the data generally indicates otherwise, there are many investors who believe that active management can create superior returns (that is, manager alpha).
If you are in this group of investors, these ETFs may be of interest.
Costs May Be Less
One reason actively managed portfolios tend to underperform passively managed ones over the long run is operating costs.
Actively managed portfolios have management fees. They also normally have higher turnover which increases transaction and administration expenses. The greater total expense ratios in managed portfolios put them at a performance disadvantage to passive portfolios.
But while an actively managed ETF will have higher costs than a passive ETF or index fund, it may have a lower cost structure than many actively managed open-end mutual funds.
Mutual fund costs include sales distribution fees, shareholder processing and communication costs, etc. that are not present in ETFs. So it is possible that an actively managed ETF may have a lower cost ratio than a similar open-end fund.
Also, with a lower cost structure, there is less of an initial performance disadvantage against passive ETFs. So the managers have less of a hurdle to match the passive ETF results.
These factors may lead to relatively higher returns in the actively managed ETF.
Lots of mights and mays.
The reason is that actively managed ETFs are such a recent phenomenon. With only a short history and so few ETFs, it is impossible to intelligently assess relative performance.
My instinct says that over time passive ETFs will prove superior in most market segments. There may be opportunities for active ETFs (like active mutual funds) in niche and/or inefficient markets. But time will tell.
Disadvantages of Actively Managed ETFs
As with any investment, there are also some potential negatives.
Passive Over Active
The obvious disadvantage is the classic active versus passive argument. Why pay management fees for something that likely will not result in a positive alpha?
As we just saw, there is no evidence that an actively managed ETF will outperform over time. Until I see conclusive evidence, it might be better to stick to a low cost passive approach.
Costs May Be Less, But…
While actively managed ETFs may have less overall expenses than active mutual funds, there may be transaction costs on ETF trades that do not exist for open-end funds. Depending on one’s trading pattern, there may not be a cost advantage for ETFs over open-end funds.
Also, there can be a substantial variance between total expense ratios of ETFs and mutual funds. And this is especially true for ETFs and funds that follow different investment styles.
Always compare cost structures between investments of the same style. Never assume an ETF will automatically be less costly than an open-end mutual fund.
Again, the useful rule of thumb is that the more work required by a fund, the greater the annual cost. And while I think that there may be potential manager alpha in niche or inefficient markets, these markets also tend to require greater work and incur higher costs.
Improved Transparency
Another potential disadvantage is the increased transparency. Yes it is a two-edged sword.
Investors like the increased portfolio transparency. ETF managers less so.
Active managers do not like disclosing their holdings. In doing so, others can determine the manager’s investment choices and strategies and replicate them.
Many investors try to mirror the investments of successful investors like Warren Buffet. By knowing an actively managed ETF’s holdings in real-time, investors can create their own identical portfolios without incurring any management fees.
Not a profitable situation for the ETF manager.
Further, there may be pricing issues when ETF managers attempt to adjust their portfolios.
The Buffets of the world have some protection as there are delays between trades and regulatory disclosures. If they had to disclose in real-time, other investors would compete for the same investments (almost) simultaneously. This form of front running impacts supply and demand for investments and may cause significant price fluctuations for ETF managers trying to buy or sell portfolio holdings.
A potential result of this transparency problem is that the vast majority of actively managed ETFs concentrate on currencies and fixed income investments. Areas where knowing the manager’s holdings is less of a problem for future transactions and pricing.
Style Drift May Cause Inefficient Portfolios
Finally, there can be substantial style drift in an actively managed ETF.
While there may be a benchmark index associated with the ETF, managers have significant leeway to deviate from the benchmark. Without closely monitoring the ETF’s holdings, individual investors may find that their own investment portfolio has become inefficient. That is, your expected returns may be too low for the level of risk assumed or vice-versa.
Also, there may be less than efficient portfolio diversification based on investments made within the ETF.
So be careful in monitoring an ETFs actual investments versus its stated benchmark.
Conclusion
It will take a few years and a few more funds to better assess the relative performance of actively managed ETFs.
I would suggest that you avoid being part of the test phase. Wait until the data is in before deciding if you want to invest in these ETFs.
If you cannot wait, no problem.
Just make sure you do your due diligence on any ETF you want to purchase. While there may be no track record for the ETF, review the experience and performance of the ETF managers in their previous positions. While the past is no guarantee of the future, it might provide some clues on the manager.
by WWM | Oct 31, 2018 | Exchange Traded Funds
Not all exchange traded funds (ETFs) are passively managed, index funds.
Some ETFs use investment strategies that require varying levels of active management. These include leveraged, inverse, actively managed, wraps, enhanced income, and life-cycle ETFs.
Today we will cover leveraged ETFs.
Leveraged ETFs
Leveraged ETFs use derivative and/or debt instruments to increase the purchasing power of a fund’s portfolio.
The amount of leverage is directly linked to the level of derivatives or debt used.
For example, perhaps you have USD 10,000 to invest in shares of a company trading at USD 100 per share. Ignoring transaction costs, you are able to purchase 100 shares. After one year, the share price rises to USD 150, you sell the 100 shares and net USD 5000 for a 50% return.
But if you leveraged the transaction, your return would be higher.
Say you borrow USD 3000 (30%) at a 5% annual interest rate. You are now able to buy 130 shares, rather than 100. One year later you sell at USD 150 and net USD 6350 after interest expense. You have earned 63.5% % with 30% leverage. Had you been able to borrow 50%, you could buy 150 shares. After a year, had the share price rose to USD 150, you would net USD 7250 after interest. That translates into a 72.5% return at a 50% leverage.
Leverage can enhance one’s investment returns.
Of course, leverage is a two-way street. You can amplify your gains by leveraging, but you also can increase your losses. And, as added insult to injury, you also pay a cost on the instruments used to leverage. Use with caution.
Ultra ETFs
Ultra ETFs are a special category of leveraged ETFs.
Ultra ETFs attempt to achieve twice (or thrice, or even more) the daily return of the target benchmark index. In essence, these ETFs are 100% (or higher) leveraged.
Investors may like these ETFs as they can get twice the investment for each dollar allocated to the ETF. Perhaps you want to allocate 10% of your capital to equities in emerging markets. However, you only have enough capital available to invest 5% in emerging markets. By investing in an ultra ETF, you effectively are investing 10% as the fund’s return should reflect twice the benchmark index.
The greater the leverage, the greater the portfolio volatility. So expect ultra ETFs to be of greater risk than unleveraged (or less leveraged) ETFs.
Also, the returns may not always be twice the benchmark. Tracking error may be a problem as ultras track and reset to one day performance. During periods where the markets are flat, ultra ETF returns may not be double. Also, there may be deviations over the longer time periods due to the tracking error and timing.
This is a point often overlooked by investors. The daily resetting can cause significant return fluctuations from expectations. Be sure to understand the risks of tracking error in leveraged ETFs.
Finally, the costs involved with maintaining this investment strategy may impair net returns for investors.
Positives of Leveraged ETFs
The obvious upside with any leverage situation is that the investor gets more bang for the investment dollar. The greater the amount of leverage, the higher the impact.
Many investors and business people have made their fortunes primarily because of leverage use. So I am not going to tell you to avoid using leverage. Just be very aware of the risks and know that greater returns are not guaranteed by leveraging.
Negatives of Leveraged ETFs
The greater that a leveraged product can increase in value, the greater it can also fall.
In our example above, say that the share price instead fell to USD 50 after one year. Unleveraged, you lose USD 5000 or 50%. Leveraged at 30%, you lose USD 6650 or 66.5%. At 50% leverage, you lose USD 7750 or 77.5%. The losses can also accelerate, so be careful.
A big advantage of ETFs is their low expense ratios, relative to other comparable investments.
But, as an ETF leverages, it requires more work by the fund.
Active management is needed to calculate, conduct, monitor, and maintain leverage strategies. There is increased administrative work and filing requirements. Leveraging is not a costless activity. There are costs associated with leverage; interest expense and derivative costs being significant. Finally, there are increased transaction costs associated with initiating and maintaining the leveraged positions.
As work required to leverage an ETF rises, so too does the ETF’s annual expense ratio.
By investing in a leveraged ETF, you may negate one of the advantages of ETFs, its cost structure. Be careful when assessing leveraged ETFs. Do not think ETF always equals low cost.
When we reviewed ETF investment costs, I used iShares S&P 500 Index (IVV) as an example. IVV maintains an annual expense ratio of 0.04%.
In comparison, let’s check the expense ratios on two leveraged ETFs that also track the S&P 500 index. Both target two times the daily returns of the S&P 500. The ProShares Ultra S&P500 (SSO) has an expense ratio of 0.90% and the Horizons BetaPro S&P 500 2X Daily Bull ETF (HSU) has an expense ratio of 1.15%.
To leverage through an ETF you are paying a significant cost. Be sure the returns justify the much higher fees. Remember that regardless of performance, the fees stay the same. No breaks for bad returns.
Results for leveraged ETFs are mixed. The first leveraged ETF was created in 1993 (I believe), so they do not have a lengthy track record. In reviewing performance, if you pick the right periods, you will outperform the benchmark. But if you buy during a down cycle, you will likely underperform. No surprise there.
Also rather obvious is the impact of the higher fees. In our example above, you are losing roughly 1.0% each year versus buying the non-leveraged index ETF. That can add up over time in your decreased compound returns.
There may also be issues with tracking error for funds that attempt to leverage results in specific proportions. You may pay for performance that does not occur.
So definitely a few things to consider before jumping into leveraged funds.
Conclusion
Not based on any specific empirical evidence, but my instinct says to avoid leveraged ETFs. The listed negatives outweigh the advantage of potentially enhanced returns. Especially the higher costs. Also, in these investing posts, I want to focus on prudent, long-term investment practices. Less on shorter term, tactical or more speculative investing.
That is not to say, do not leverage. If you want to leverage, fine. I do it myself. I just think it is less costly to leverage directly through margin accounts or bank lines of credit. That is the strategy I would employ over buying leveraged ETFs.
by WWM | Sep 26, 2018 | Alternatives, Exchange Traded Funds
To date, we have treated exchange traded funds (ETFs) primarily as passively managed, index trackers.
But there is more to ETFs. A whole lot more. There are ETFs that invest in every possible asset class. Not to mention leveraged, inverse, and actively managed funds.
All these other ETFs trade exactly as the ETFs we previously discussed. The only difference is the assets within the ETF portfolio and/or the investment tactics used by the ETF.
We will quickly review a few common alternative asset ETFs below. In later posts, we will go through the leveraged, inverse, and actively managed funds.
Fixed Income ETFs
Instead of equities, fixed income ETFs invest in bonds, money market instruments, and preferred shares.
Within these ETFs, there may be a specific focus. For example, short or long term bond funds. Maybe a ladder bond fund. Perhaps emerging market preferred share ETFs.
We have covered money market instruments, bonds, and preferred shares already, so please refer to those posts should you require a refresher on the asset class.
Real Estate ETFs
Real Estate Investment Trust (REIT) ETFs invest in shares of equity REITs and real estate derivatives.
REIT ETFs track REIT related indices. In the U.S., two popular indices are the MSCI U.S. REIT Index and the Dow Jones U.S. REIT Index. These indices contain just under 70% of the publicly-traded REITs in the U.S. domestic market.
We will cover REITs when we look at real estate as an asset class. They have characteristics of both equities and fixed income investments. REITs experience price fluctuations based on their underlying investments and expectations for their associated real estate markets. REITs also pay out high dividends annually as they disburse profits to shareholders.
Both REITs and REIT ETFs are interesting investments as they provide indirect exposure to the real estate market.
Commodity ETFs
Commodities are another separate asset class from more traditional investments such as equities or bonds. They may add diversification potential in one’s portfolio. That said, commodities are quite complex and should be invested in with great care (and knowledge).
Commodity ETFs may track an individual commodity, such as oil or gold.
Other commodity ETFs may track a basket of various commodities. For example, the ETRACS Bloomberg Commodity Index Total Return ETN (DJCI) tracks the collateralized returns in a basket of 23 different commodities.
Some investors also include a third type of ETF as a commodity ETF. Namely, ETFs made up of companies that produce a specific commodity. The belief is that the performance of companies involved in a specific commodity related sector will reflect changes in demand and price for the commodity itself.
When the price of gold rises, there should be increased demand for the commodity. This will create more business for companies mining gold. Also, at increased prices, the mining companies will receive higher amounts for their supply. Both of these will serve to strengthen profitability and share price for the mining companies.
This is what drives ETFs such as VanEck Vectors Gold Miners ETF (GDX). It invests in shares and American depositary receipts of companies involved in the gold mining industry.
I do not consider this third group of ETFs to be true commodity ETFs. Rather, they are simply equity ETFs investing in a specialized market segment. However, when calculating my portfolio asset allocation, I typically include these companies in any allocations I may have for commodities or precious metals.
Currency ETFs
These ETFs track specific currencies. Either a single currency or a basket of currencies.
For investors that want exposure to foreign exchange without having to trade on the more complex futures or forex markets, this is a good solution.
Investors might want foreign exchange exposure for a few reasons. These include: hedging against other investments or business activities; belief that your domestic currency will depreciate relative to a foreign currency; obtaining higher interest rates in the foreign currency than in your domestic market.
Currency ETFs are probably better used as shorter-term investments. This is because rates of return on cash tend to be the lowest available on all asset classes.
Unless you wish to hedge other activities or speculate on relative changes in currency values, find other avenues to invest in foreign markets. Purchase shares in foreign companies or foreign pay bonds instead, as these will have higher expected returns than foreign currency interest rates.
Okay, just a quick overview of those ETFs. As you can see, there are a variety of ETFs available in different asset classes. These greatly assist investors in creating well-diversified portfolios.
As ETFs tend to be low cost instruments relative to other options, they aid in cost minimization. That said, never forget that cost is often a direct function of work involved. As we move away from simple equity index trackers, the work required to maintain an ETF increases. Watch total expense ratios for all investments. This is especially true with more complex ETFs.
by WWM | Sep 19, 2018 | Exchange Traded Funds
To date, we have compared exchange traded funds (ETFs) with open-end mutual funds.
Today we will take a quick look at ETFs versus closed-end investment funds (CEFs). I shall not delve too deeply into CEFs as they have become a very small percent of the investment market versus open-end mutual funds and ETFs.
As at September 2018, Morningstar lists 630 CEFs covering all asset classes in its CEF Quickrank screener. Morningstar’s Mutual Fund Quickrank lists 26,974 funds (although this includes multiple share classes for each fund) and 2229 ETFs. Most investors will happily go through life never trading a CEF. So not a focal point in this series.
ETFs Are Much Like CEFs
ETFs are very similar to CEFs.
Both have a limited number of outstanding shares; trade directly between investors continuously throughout the day on authorized exchanges; (normally) require investors to pay brokerage fees, but no loads, when buying or selling shares; can be bought on margin; determine share price by investor demand, not the net asset value (NAV) of the ETF or CEF.
For the most part, ETFs and CEFs are the same investment vehicle.
But do not confuse them when investing.
There are differences between the two and these can impact your investment.
ETFs Often Have Lower Expense Ratios
As with open-end mutual funds, ETFs often have lower annual expense ratios than CEFs.
Most CEFs are actively managed. As a result, their expenses will typically be higher than a passively managed ETF in the same asset class. This may be enhanced in CEFs that utilize debt to leverage portfolios. Interest costs must also be factored into total annual expenses.
However, with an ever increasing number of actively managed and niche ETFs, that may increase annual ETF ratios.
Always look for apples to apples comparisons when assessing potential investments. A plain-vanilla S&P 500 Index ETF should have a lower expense ratio than an actively managed U.S. small cap focussed CEF. Whereas, an actively managed small cap ETF’s expenses may be more in line with that of a similar CEF.
As we discussed in our annual expense review, larger companies may have economies of scale that reduce expenses on a per unit basis.
ETFs Tend to Trade at their NAV
I wrote above that price is determined by investor demand (and supply of available shares) for ETFs and CEFs.
But now I am saying that ETFs trade at their NAV.
What gives?
Well, both statements are true.
ETFs are traded between investors who determine the market price based on demand and supply of shares issued by the fund company. However, the way in which ETFs are typically traded by institutional investors results in their share price normally reflecting the fund’s NAV.
Without getting too detailed, institutional investors use arbitrage techniques to try and profit on differences between the market value of the ETF and and the actual components of the index being tracked. The intense competition ensures that price variances between ETF and the index will be negligible, meaning that the ETF will normally trade at its NAV.
This institutional arbitrage is not present in CEFs. Without this mechanism, there can be material fluctuations between the NAV of a CEF and its market capitalization based on investor demand and available supply.
CEFs may trade at either premiums (market value is greater than NAV) or discounts (market value is less than NAV). There are a variety of factors as to why, including: assets within the portfolio; number of shares outstanding; liquidity; market efficiency; expectation of management’s ability to outperform.
Some investors seek out CEFs that trade at discounts. They believe that they are buying an asset at a discount to its intrinsic value (or, at least the current net asset value of the company). The expectation is that the share price will revert back to NAV, creating a profit for the investor.
Other investors do not mind paying a premium. Perhaps they believe that the management team will outperform in asset selection and that is worth something. Or maybe the assets in which the fund invests cannot be accessed directly by the investor (e.g., private equity).
ETFs May Be More Liquid
Not always the case, but ETFs are often more liquid than CEFs.
Per Morningstar data, there are 11 CEFs that are part of the U.S. Large Blend Equity market. Only 4 of the 11 have a market value over USD 500 million. The largest, Gabelli Dividend & Income (GDV), is at USD 1.96 billion.
Decent size funds, but a far cry from ETFs tracking the S&P 500 index which reflects U.S Large Blend stocks. The SPDR® S&P 500 ETF (SPY) has a market value of USD 271 billion. The iShares Core S&P 500 ETF (IVV) USD 165 billion. The Vanguard S&P 500 ETF (VOO) USD 104 billion.
There is much less capitalization (and likely liquidity) with the CEFs.
To buy or sell a CEF (or ETF) you need to find another investor. With open-end mutual funds, you trade with the fund company. Assuming the company is solvent, liquidity is not an issue. But if a CEF has limited shares outstanding, it may be difficult to buy or sell.
If considering CEFs (or even smaller ETFs), review the average daily trading volume to get an idea as to how liquid your investment may be. For example, the SPDR® S&P 500 ETF (SPY) has an average daily trading volume of 59.3 million. The Gabelli Dividend & Income (GDV) CEF only trades 0.11 million per day. The limited volume may require investors to pay more to buy and accept less to divest their shares. Especially in a rapidly moving market.
Remember, the less liquidity, the greater the potential costs in your portfolio.
Conclusion
CEFs can be useful investments.
I personally prefer CEFs that trade at discounts to their portfolio’s NAV. My hope is that the CEF share price will revert to its NAV, or even a premium, thereby giving me more return than simply from the investment returns within the fund itself.
But for the most part, I do not recommend CEFs. For investors maintaining a passive investment strategy, CEF costs are usually too high relative to ETFs and open-end index mutual funds.
I also prefer ETFs or open-end mutual funds that trade close to, or at, their NAV. Having to assess the potential for discounts and premiums is another factor that complicates analysis and can potentially impair my returns.
Finally, I prefer the generally greater liquidity in ETFs and open-end mutual funds.
An exception is for markets that may not have ETFs or open-end index funds available. This used to be an issue in certain countries or asset classes. However, over time this is becoming less of a problem as more and more index funds and ETFs are created.
by WWM | Sep 12, 2018 | Exchange Traded Funds
Previously, we reviewed the potential advantage of exchange traded funds (ETFs) over mutual funds relating to enhanced trading flexibility and annual expense ratios.
We will now look at advantages (or not) of ETFs in respect of transaction costs and tax efficiency. The benefits of ETFs over mutual funds (or not) will be a function of how investors set up their accounts and implement investment strategies.
Transaction Costs
Loads
ETFs trade like stocks. There are no sales charges (i.e., loads) charged by the issuing fund company.
Conversely, open-end mutual funds may be subject to sales charges. Given the number of funds available, I seldom recommend anyone pay a load for an index fund. But be aware that they do exist and be careful about paying any loads.
If you avoid funds with sales charges, there should be no cost difference between an ETF and an open-end mutual fund in this aspect.
Broker’s Commissions
Although there are no loads for ETFs, all trades are subject to broker’s commissions when ETFs are bought or sold.
If you buy or sell open-end funds directly through the fund company, you will not pay a commission. You are also normally able to transfer capital between funds of the same family without charge. So, open-end funds might actually be cheaper to trade than ETFs.
In buying and redeeming funds directly through the fund company, transaction costs may be cheaper for funds than ETFs.
However, for convenience, many investors hold all their portfolio investments in one or two brokerage accounts.
If you use your brokerage account to trade open-end funds, you may be charged a broker’s commission similar to what is charged on an ETF. Every broker has a different pricing scheme. Review their commissions on ETFs and mutual funds.
Also, many brokers have arrangements with certain fund companies so that commissions on some open-end funds are waived. That may also impact your costs and investment decisions.
Tax Efficiency
Another potential advantage of ETFs over open-end mutual funds is their tax efficiency.
It is often cited that taxable capital gains are only incurred when the investor sells an ETF. With mutual funds, the capital gains flow out to shareholders as the fund itself incurs gains on internal sales. As a result, shareholders may be liable for capital gains taxes even while they still own the mutual fund shares.
Of course, the relevancy of this advantage depends on the your own tax laws. I suggest you take a look at the jurisdiction applicable to you and determine what, if any, advantages ETFs may have over mutual funds in respect of taxes.
Given that taxes can significantly impact your wealth accumulation over time, always a good idea to focus on tax efficiency. This is an area where a competent financial advisor with tax knowledge is often worth the expense.
Conclusion
After all that it remains to be seen if ETFs truly provide cost advantages against major open-end index mutual funds in the same category. This runs contrary to conventional wisdom on the subject. Something I suspect arose back when fund costs were significantly higher.
Do not blindly assume that ETFs will be cheaper than all open-end index mutual funds.
Always compare costs before investing in one or the other.
Factor in how you intend to trade (e.g., via fund company versus broker, frequent trades versus buy-and-hold, etc.). That will impact your decision and costs.
Finally, never forget taxes. They have enormous impact on long term investing success.