1. Mutual Funds
vs.
Exchange Traded Funds

2. MUTUAL FUNDS

3. WHAT ARE MUTUAL FUNDS?
A mutual fund is an investment company that invests its shareholders’ money in a diversified portfolio of securities.
A mutual fund can be considered a financial product sold as ownership interests (shares of stock) to the public by an investment company.
When investing in a mutual fund, investors are becoming part owners of a widely diversified portfolio of securities.
The fund is built and managed by the investment company for the investor.
This management comes at a charge for the investor.

4. TYPES OF MUTUAL FUNDS Open-End Funds Closed-End Funds Most common
No limit to the amount of growth
Purchased from the mutual fund company directly and redeemed likewise
Net Asset Value (NAV) is based on price of underlying securities
Ordered at the future NAV
Closed-End Funds
Less common but gaining in popularity
There is a limit to the amount of growth
Once issued they are bought and sold on the major exchanges just like stocks
Price is related to underlying securities, but determined by market demand
Traded at current market price throughout the day

5. ADVANTAGES DISADVANTAGES
Instant diversification
Asset allocation
Variable transaction costs (shop around/compare)
Dollar-cost averaging
Liquidity
Professional management
DISADVANTAGES
Returns are not guaranteed
Must actively evaluate fund’s performance against other funds
Shareholder fees
Annual management fees 1-3%
Misleading advertisements

6. EXCHANGE TRADED FUNDS (ETFs)

7. WHAT ARE EXCHANGE TRADED FUNDS?
An Exchange Traded Fund (ETF) is a basket of securities that tracks the performance of a stock, bond, or commodity index -- yet trades like a stock. It has a ticker, is marginable, can be sold short, and is traded on a stock exchange such as:
American Stock Exchange
New York Stock Exchange
NASDAQ
The basket of securities is generally called a “trust” or “fund” and is held and managed by a financial institution.

8. CLASSIFICATIONS OF ETFs
Unit Investment Trust
Dividends do not reinvest immediately, but accumulate as cash in order to purchase additional creation units
Creates slight cash drag on overall performance
Examples: SPDR Trust Series I, Diamond Trust Series I
Open-Ended Fund
Fund will reinvest dividends immediately
Little or no cash build up
Examples: iShares, Select Sector SPDR’s

9. HISTORY AND GROWTH OF ETFs
The first Exchange Traded Fund traded in 1990 on the Toronto Stock Exchange.
State Street Global Advisors started the first U.S. ETF in 1993; it is still being traded today on the American Stock Exchange.
The SPDR (Standard & Poor’s Depository Receipt) S&P 500 ETF tracks the S&P 500 stock index and is the largest ETF on the market.
ETFs grew in popularity and began to be seen on all the major markets. Today, there are more than 1,100 ETF’s* traded amongst all of the major exchanges and are still growing in number.

10. TYPES OF EXCHANGE TRADED FUNDS
Since ETFs strive to track indexes, they vary according to which type of index is being used. The many different categories include:
Market Cap – track a variety of market indexes including each of the major U.S. market indexes:
Dow Jones Industrials (DIA) “Diamonds”
S&P 500 Index (SPY) “Spiders”
NASDAQ 100 (QQQ) “Qubes”
International/Regional – track a specific world emerging markets:
DJ EURO Stoxx 50 ETF

11. TYPES OF EXCHANGE TRADED FUNDS
Sector/Industry :
track a given sector of the market such as Financial (XLF) or Technology (XLK). There are nine Select Sector SPDRs that represent the S&P 500 as a whole.
Consumer Discretionary XLY
Consumer Staples
XLP
Energy - XLE

12. TYPES OF EXCHANGE TRADED FUNDS
COMMODITY : track a given commodity such as gold and silver (SLV): streetTRACKS Gold Shares (GLD)
FIXED INCOME: track bonds: Municipal Bonds Fund (TFI)

13. CREATING AN ETF
A financial institution will formulate a “Creation Unit,” which is a collection of stocks, perhaps 50,000 shares, that serve as the underlying investment of the ETF.
The ETF trust portfolio will consist of many Creation Units that are split up to provide shares of the ETF.
Each ETF share represents a tiny faction of the trust.
These individual ETF shares can then be traded like shares of stock on the open market.

14. HOW THE PRICE OF AN ETF IS DETERMINED?
Market Price is based on the Net Asset Value (NAV)
Market value of the underlying securities
Any cash in the portfolio
Management fees are deducted as expenses.
However, Supply and Demand forces impact the price causing it to fluctuate from the NAV.
A market price that differs from the NAV is either bought or sold at a premium or discount to the NAV.

15. ADVANTAGES DISADVANTAGES
You can apply limit, stop, and trailing stop orders
Can be a more diversified short-term investment and more flexible long-term investment.
No minimum balance requirement.
Lower distributions for tax purposes can be good.
You can narrow in on a tighter sector.
ADVANTAGES
DISADVANTAGES
They are not exactly like the index that they track since price fluctuates with market demand
Passively managed
Commission charged to buy and sell
Lower distributions for tax purposes may not be appealing if you have an IRA or other tax sheltered investment
May include many bad stocks that exist in a sector

16. ETF FUNDS AT A GLANCE SPDR S&P 500 ETF
TOP HOLDINGS
FUND WEIGHT
Exxon Mobil Corp
2.85%
Apple Inc.
2.71%
Microsoft Corp
1.70%           
Johnson & Johnson
1.68%           
Chevron Corp New
1.63%           
General Electric Co
1.62%           
Pfizer Inc.
1.56%
Google Inc.
1.54%
Procter & Gamble Co
1.50%
AT&T Inc.
1.45%

17. ALLOCATION

18. FUNDS AT A GLANCE Fund Characteristics Net Asset Value Market Price
Dividend Yield
2.02%
FY1 P/E Ratio
14.33
Number of Holdings
502
Price/Book Ratio
2.28
Weighted Average Market Cap ($M)
$105, M
Fund Information
Ticker Symbol
SPY
Gross Expense Ratio
0.1102%
Net Expense Ratio♦
0.0945%
Inception Date
01/22/1993
Primary Benchmark
S&P 500
Investment Manager
State Street Global Advisors
FUNDS AT A GLANCE
Net Asset Value
Price
$157.85
Shares Outstanding M
Total Net Assets
$129, M
Market Price
Closing Price
$157.90
Bid/Ask
$157.88
Premium/Discount
0.02%
Day High
$158.29
Day Low
$157.54
Exchange Volume (shares)
17,266,303
Fund sells/buys at nearly NAV Price
Low Expense Ratio
Large Net Assets
Large Exchange Volume
As of 04/24/2013

19. WHO ARE THE MAJOR PLAYERS?
SPDRS
There are more than 30 “SPDR” ETFs but not all are linked to any Standard & Poor's Index.
Any ETF associated with State Street Bank and Trust Company is grouped as “SPDR.”
Other SPDRs include: Select Sector SPDRs and streetTracks
Other groupings of ETFs based on sponsoring financial institution which hold the underlying securities:
VIPERS are marketed
by Vanguard.
iShares group is
marketed by
Barclays Global
Investors.
HOLDRs (Holding
Company Depository
Receipts) are marketed
by Merrill Lynch.

20. OTHER MAJOR PLAYERS

21. SIMILARITIES BETWEEN MUTUAL FUNDS AND ETFs
A managed portfolio of securities
Portfolio of varying securities
Striving to provide diversification among different companies
Closed-end fund and ETFs are traded at the normal stock exchange

22. COMPARING ETFs TO INDEX MUTUAL FUNDS SPDR S&P 500 ETF
Type Of Fund
Symbol
Acct Min
IRA Min
Assets
Exp. Ratio
Dreyfus S&P 500 Index Fund
PEOPX
$2,500
$100
$2.52 B
0.51%
SPDR S&P 500 ETF
SPY
1 Share* --
$ B
0.0945%
* AS OF 04/22/2013
Less money is required to start investing in the ETF over the Mutual Fund
The ETF has a lower expense ratio
The ETF has billions of dollars of more assets

23. COMPARING ETFs TO INDEX MUTUAL FUNDS SPDR S&P 500 ETF
Average Annual Total Returns (%) Before Taxes
1 YR
3 YR
5 YR
10 YR
Dreyfus S&P 500 Index Fund
13.44%
12.15%
5.36%
8.05%
SPDR S&P 500 ETF
13.78%
12.50%
5.73%
8.42%
Over a 10 year span, the ETF out performed the Index Mutual Fund.
Neither the Mutual Fund nor the ETF was able to perfectly track the actual Market Index.

24. Advantages of An ETF Over a Traditional Index Fund (SPDR S&P 500 ETF)
ETF is both diversifiable like mutual funds and tradable like stock
Lower expense ratios than the lowest-cost index mutual funds
Lower minimum investments (can buy one share instead of having to invest $2500 or more – some index funds require $10,000)
More accessible since can trade them with any broker
No surprise in price since traded all throughout the day

25. WORD OF CAUTION ETF’s Mutual Funds
IMPORTANT!!!
You must assess your risk tolerance and decide whether these would be a wise investment vehicle for your portfolio. When properly used, they can greatly compliment many portfolios.
ETF’s
Mutual Funds

26. CONCLUSION
ETFs are constantly growing in popularity and availability and can be added to a 401k plan. Possible alternatives to traditional mutual funds while still providing diversification.