DEFINITION of 'ETF Wrap'

A type of special investment portfolio in which an investor, with or without the aid of an investment advisor, invests solely in exchange traded funds (ETFs). The composition of each ETF class is initially based on a preselected asset allocation model, and will periodically need to be rebalanced in response to changes in market values.

BREAKING DOWN 'ETF Wrap'

Common asset allocation models are 100% equity, 100% fixed income or a balanced model, which contains both fixed income and equity. The choice of model depends on an investor's age, tolerance to risk, income, goals and other personal factors. Investors can choose to manage an ETF wrap themselves in a non-discretionary account, or elect to have a professional do so on their behalf in a discretionary account.

ETF wraps are beneficial due to their low expense ratios when compared to other mutual fund wraps. In addition, they offer investors intraday trading, tax efficiency and more. One general problem with these wraps is the cost of trading ETFs. The sale and purchase of ETFs is no different than purchasing normal stock in that commission fees are charged for every transaction; unless the investor is with a discount brokerage, performing frequent trades will be costly.

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