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ETFs No Better Than Mutual Funds?

Posted in Equity Premium, Mutual/Hedge Funds

Is the conventional wisdom that exchange-traded funds (ETF) are efficient, low-cost alternatives to mutual funds correct? In their September 2019 paper entitled "The Performance of Exchange-Traded Funds", David Blitz and Milan Vidojevic evaluate the performance of a comprehensive, survivorship bias-free sample of U.S. equity ETFs. They first divide the sample into three groups: (1) broad market index trackers; (2) inverse and leveraged funds; and, (3) others. They then subdivide group 3 into equity factor subgroups (small, value, dividend, momentum, quality or low-risk) based on either their names or their empirical exposures to widely accepted factor premiums. Finally, they compare performances of value-weighted ETF groups to those of the broad U.S. stock market and specified factors, focusing on data starting January 2004 when there are at least 100 ETFs of some variety. Using trading data and descriptions for 918 U.S. equity ETFs (642 live and 276 dead by the end of the sample period) and equity factor returns during January 1993 through December  2017, they find that:

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