Can exchange traded funds beat market?
originally posted: 11/22/2006 reposted: 2/18/2011 This post has not been recently reviewed or revised by the author and may be out of date. If you notice an error or are in doubt, please send a new question by email or ask for an update. Email asktony@tonynovak.com.
Q: Since exchange traded funds use market indexes, there is no way to “beat the market”, right?
A: Exchange traded funds (known as ETFs) are the newer and often better version of mutual funds and until recently all ETFs used market indexes like the S & P 500 or Wiltshire 5000 to match the market index performance. But now some EFTs use actively managed indexes that are specifically intended to weed out under performers from the large base of underlying securities. So it is possible to use ETFs for actively managed accounts that are intended to outperform the market indexes. Of course, it is possible that the active management could result in under-performing the market. The only thing that is fairly certain is that ETFs will outperform mutual funds, and that is really their fundamental intended purpose.
Summary
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