International ETF vs. Mutual Fund
Exchange-traded funds (ETFs) and mutual funds are investment vehicles that pool money together to diversify investor funds by holding a larger variety of securities than if they were bought individually. The product offerings for both have expanded to include international funds. An international ETF and mutual fund differ in how they are bought, how they can be used, and the fees associated with them.
Other People Are Reading
-
Management
-
The holdings in a mutual fund or ETF are benchmarked to an index that tracks a particular asset class. For example, a mutual fund that invests in large U.S. companies might benchmark itself to the S&P 500, which measures the stock performance of large U.S. companies. International ETFs are passively managed investment vehicles, which means their objective is to invest in an asset class in a way that mirrors the holdings of the fund's benchmark index, with no intention of actively picking stocks that will outperform that index. A mutual fund can be actively or passively managed. An actively managed mutual fund employs a fund manager who tries to predict which stocks will out perform others and buy those in greater quantity to achieve above-market returns.
Differences
-
With a mutual fund, shares are only bought at the end of the day, and investors are not charged sales commissions for making contributions to the fund. ETFs, on the other hand, are bought and sold like stocks. This means ETFs can be bought during the day, and can be used for more advanced trading techniques like buying on margin and short selling. Investors must pay brokerage commissions whenever they make a transaction with ETFs. A mutual fund can be benchmarked to an asset index that covers international or domestic assets, whereas an international ETF will only track an index that tracks international stocks or bonds.
-
Product Offerings
-
A mutual fund can track an asset index that covers international or domestic assets, whereas an international ETF will only track an index that tracks international stocks or bonds. International ETFs track global stock indexes such as the All World FTSE, regions of the world such as Latin America or the Middle East, the global real estate market, as well as the international bond market (see Resources). Mutual funds exist for these asset classes as well, and can also cover domestic indexes like the S&P 500 or the Dow Jones.
Cost
-
When making an apples-to-apples comparison, an ETF will have a lower expense ratio than a mutual fund that tracks the same index. ETFs have different cost structures that make them less expensive to administrate, and actively managed mutual funds pay extra in salaries for fund managers. For example, Vanguard has a mutual fund and an ETF that both track the FTSE All World Index. The ETF charges an expense ratio of 0.22 percent and the index fund has an expense ratio of 0.35 percent. However, a mutual fund that invests in domestic assets may have a lower expense ratio than an international ETF, since US markets are more liquid and have more available shares to buy. For example, the Vanguard 500 Index fund, which tracks the S&P 500, has an expense ratio of 0.18 percent.
-
