SIE (Securities Industry Essentials) Practice Exam

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Which of the following is NOT an advantage of an ETF compared to open-end mutual funds?

  1. Undertrading

  2. Intraday trading

  3. Tax efficiency

  4. Lower expense ratios

The correct answer is: Undertrading

An advantage of an ETF, or exchange-traded fund, is its ability to be traded like a stock, allowing for intraday trading. Additionally, ETFs often have lower expense ratios compared to open-end mutual funds, which typically have higher management fees and transaction costs. ETFs are also more tax efficient than mutual funds, as they have lower annual capital gains distributions. Therefore, option A, undertrading, is not an advantage of an ETF and is an incorrect choice.

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