Huszczo: In general, ETFs can be more volatile. It’s my understanding that mutual funds can’t be shorted, but ETFs can be shorted, which opens the door to short sellers pushing the position one way or the other. I don’t think that’s a problem for a gigantic fund like Vanguard’s VOO fund [Vanguard S&P 500 ETF]. Given that, we take into account the size of an investment to a degree.
Ultimately, you have to play it [investing in ETFs] the right way. For example, we don’t think many active managers are adding alpha in the large-cap space. So to participate in that market we think a four-basis-point drag [VOO’s expense ratio] is nothing. In the inefficient markets, there can be factor-based funds with expense ratios of 20 to 30 basis points that can pay off by providing some alpha. As long as you know how to use ETFs, I’d say they have a pretty good advantage. But in my opinion ETFs still require a little more expertise on knowing how to use them. I don’t think they’re just plug-and-play like a mutual fund could be.