These vehicles can be a useful part of an investor's tool kit, but there are drawbacks. Here are some tips for using ETFsAlready quite popular with traders and sophisticated investors, exchange-traded funds, or ETFs, have hit the big time in the past year.
The popularity of these vehicles—funds that track indexes but can be traded like stocks—is evident from the pace at which the industry is rolling out new funds.
Another sign: the amount of investor dollars that have flowed from traditional mutual funds into ETFs. In 2007 investors plowed $94.5 billion into equity mutual funds, but that was surpassed for the first time by the $125.5 billion that flowed into equity ETFs, according to TrimTabs Investment Research. In 2008, meanwhile, bearish investors have pulled $54.1 billion from equity mutual funds but only $8.4 billion from equity ETFs, TrimTabs says.
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