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1.
Exchange-traded funds typically are _______.
Passively managed, or indexed. For the arbitrage mechanism to work, potential arbitragers must have full, timely knowledge of the ETF's holdings. Active managers rarely disclose this information more than twice per year, though, which is why indexing has been the strategy of choice for ETFs thus far.
2.
In general, exchange-traded funds are cheaper to buy than index mutual funds if you want to trade regularly.
False. Because of their commissions, regular trading will likely cost you more with exchange-traded funds.
3.
Compared to mutual funds, exchange-traded funds are ______ to make capital-gains distributions.
Less likely. However, at times they must, in order to adjust for changes to their underlying indexes.
4.
If you are an active, frequent trader of exchange-traded funds, then your trading expenses will probably _______ those of mutual funds.
Exceed. Those who trade frequently will probably discover this. So if you plan to trade ETFs frequently, you should take note.
5.
In what form do investors buy or redeem shares from an exchange-traded fund?
In blocks of a certain number. The blocks are typically in groups of 50,000 shares.
