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0201: ETFs vs Mutuals and Active vs. Passive | ‘The Switch’ with ARK Invest

By: ETFdb
This season of “The Switch” brings discussions about the mechanics of exchange traded funds. On this first episode of the second season, host Ren Leggi, Client Portfolio Manager for ARK Invest, and ETF Trends CEO Tom Lydon and CIO Dave Nadig discuss ETFs versus mutual funds and active versus passive ETFs. The discussion opens with Leggi explaining that ARK offers a wide range of investment vehicles, from the retail end all the way to pension funds and sovereign wealth funds. They each offer certain advantages and disadvantages, and having such a wide offering allows ARK to tailor the investment options to each client’s needs. “What we’ve seen is a lot of demand for our actively managed ETFs,” Leggi says. Nadig explains that the big draw of ETFs is their transparency, tax efficiency, and liquidity, which Leggi believes are all important factors that play into investing with ARK. Taxation is an important component for ARK as they tend to trade frequently, which can incur capital gains. The ETF structure and tax efficiency helps to offset the tax burden that some investment vehicles can have. Leggi goes on to discuss what he believes to be one of the most important and least talked-about advantages of ETFs regarding how they handle liquidity. “From a portfolio manager’s perspective, how liquidity isn’t kind of an area of concern because it’s handled by third parties” is an important distinction that doesn’t get recognized very often. When asked what he personally likes most about ARK’s investing strategies, Nadig explains that their transparency is something he finds valuable, particularly for active managers. “I think there’s something to be said for not only talking your book but showing it over and over again, why you’re doing something when you’re doing it,” Nadig says. He goes on to explain that in order to run an ETF that is truly active, because of the structure, a fully transparent approach is the only one that really makes sense. Having that level of transparency gives investors confidence, particularly as they work to balance the holdings in their portfolio. Knowing what securities an actively managed ETF is invested in allows for balancing with other funds and prevents unanticipated overlap or weighting in a security or sector that an investor may not have wanted.
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