chapter four

4 ETFs: The Building Blocks of Robo Portfolios

 

This chapter covers

  • The basics of exchange-traded funds (ETFs)
  • The advantages of ETFs in a robo advisory strategy
  • How to analyze the costs of owning and trading ETFs
  • Beyond plain-vanilla indices: Socially responsible investing and smart beta

As we mentioned before, there are over 200 robo advisors in the US alone. The features, costs, and clear investment choices vary across advisors, but nearly all share one common trait - the use of exchange-traded funds (ETFs) in implementing their investment strategies. This chapter is all about ETFs - what they are, how they work, and why they are so widely used by robo advisors.

4.1 ETF Basics

4.1.1 ETF strategies

4.1.2 ETF pricing: theory

4.1.3 ETF Pricing: Reality

4.1.4 Costs of ETF Investing

4.2 ETFs vs. mutual funds

4.2.1 Tradability

4.2.2 Costs and minimums

4.2.3 Tax efficiency

4.2.4 The verdict on mutual funds vs. ETFs

4.3 Total cost of ownership

4.3.1 Cost components

4.4 Beyond Standard Indices

4.4.1 Smart Beta

4.4.2 Socially Responsible Investing

4.5 Summary