If you are fed up with early redemption charges and ever 
increasing mutual fund management fees on top of bad-performing 
fund managers, read on. There is a quiet revolution going on 
in the no-load mutual fund industry and you, the individual 
investor, may benefit from it greatly.

I am referring to Exchange Traded Funds (ETFs), which have 
been around for years, but have grown tremendously since their 
inception. There are currently over 100 choices with around $10 
billion in assets.

In a nutshell, an ETF is a specific kind of no-load mutual fund 
that you might consider to be a basket of stocks. ETFs are 
diversified like mutual funds, only they trade like stocks. 
They are cheap to trade (as low as $8.00) and don’t hit you 
with any short-term redemption fees. And they offer investing 
opportunities across the board.

ETFs track every index under the sun including the S&P 500, the 
Nasdaq 100, The Russell 2000 and many others. Available through 
any discount broker, they basically fall into one of three 
categories: broad-based U.S. indexes, sectors and international.

The have esoteric names such as iShares, StreetTracks, HOLDRs 
and SPYDRs. The difference is in the index they are tracking 
and the company marketing them. You will see big name companies 
offering them, like the American Stock Exchange, Barclay’s 
Global Investors, Vanguard, and State Street Global Investors.

In my newsletter I track the currently most appropriate ETFs 
for you to consider. For more detailed information you can 
visit these web sites:

 - http://www.nasdaq.com

 - http://www.amex.com

 - http://www.ishares.com

In addition to inexpensive trades and no short-term redemption 
fees, how else can ETFs save you money vs. no load mutual funds? 
One way is on their annual management fees. That fee for ETFs 
is in the area of 0.45% vs. 1.5% on average for no load mutual 
funds. The fees charged by discount brokers are so low they 
almost can be disregarded, usually less than 0.1% of the 
transaction. 

For example, I have used ETFs for some managed account clients 
during my last Buy cycle, which started on 4/29/03, and paid 
$27 for a $28,000 order — and that wasn't even with the cheapest 
discount broker. 

So, if these ETFs are so great, why hasn’t your broker or 
financial planner recommended them to you? Simple! Brokers, 
and those advisors working on commissions, don’t make money 
on ETFs; no commissions up front or hidden on the back end. 
It's simply not in their interest to promote them.

With all the positives for the investor, there is one 
disadvantage, which may not be applicable to you unless you 
are a hot shot no load mutual fund picker. It is that in any 
given economic environment really super performing mutual 
funds can outperform the indexes, but an ETF can never 
outperform the index it’s tied to. You would need to look at 
your own investment record to know whether this is a downside 
for you.

Here’s a real life example from my advisory practice. My trend 
tracking indicator signaled a Buy on 4/29/03. Based on my 
momentum indicators I chose 5 no load mutual funds and 4 ETFs. 
Over the following 3 months my ETFs gained anywhere from 
+10.02% to +22.36%, while my no load mutual funds gained from 
+9.15% to +36.35%. If you’re fortunate enough to make a superior 
selection you will outperform an ETF. Of course, that presumes 
you picked a very successful fund as compared to only a 
moderately successful ETF.

A word of caution! Just because ETFs are cheap and easy to buy 
doesn’t mean they will guarantee you a profit. You can lose 
money with them just as easily as you do with no-load mutual 
funds. You still need to make sure you have a disciplined 
methodology in place to help you get into and out of the market. 
If you don’t, you’re gambling no matter what you invest in.

Having gotten the disclaimer out of the way, hopefully these 
insights into ETFs will broaden your perspective on ways you 
can prosper in your investments.