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Friday, January 16, 2009

What is ETF Wrap?

Exchange Trade Funds (ETF) wraps are getting increasingly popular now. These are investment programs offered by brokerage firms/money managers which involve solely investing in exchange traded funds. Like mutual fund wraps investments are made with respect to a pre-selected model/strategy. ETF wraps also involve periodical rebalancing of investments to achieve certain goals.

There are now a number of brokerage firms which offer different types of ETF wrap programs. Mainly the programs can be classified into two.
  1. Discretionary ETF wrap accounts: The brokerage firm offer a limited/vast number of asset allocation models which involve investing in different kinds asset allocation models. E.g.: 100% equity models, 100% fixed income models, and balanced models.
  2. Non-discretionary ETF wrap accounts: Investors can (with or without help of an advisor) create their own asset allocation model with respect to their profit goals and risk tolerance.
ETF wraps are considered more beneficial than mutual fund wraps as ETFs have lesser expense ratios, have tax benefits and can be intraday traded. But as ETFs are traded just like stocks they include more trading costs; unless trading through a discount broker. There are also some brokerage firms which offer commission-free ETF wrap accounts.

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posted by Daniel Pipitone at 5:19 AM

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