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Mutual Funds Versus ETFs - Other Considerations

ETFs continue their innovation, offering active management and funds of funds (an ETF pursuing a strategy by investing in other ETFs). Some go further out along the risk continuum with the advent of synthetic ETFs, for which return comes from a swap rather than an index, ETNs (exchange traded notes), which hold fixed income, and ETVs (exchange traded vehicle), which are similar to ETNs but issued through a special purpose vehicle to gain access to more opaque markets; here counterparty risk exists. Finally, there are leveraged ETFs and inverse ETFs that track the opposite performance of an index, effectively making a directional bet. The aforementioned suite of products is best reserved for the more sophisticated risk-aware investor.

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