Do exchange-traded funds (ETFs) turn long-term investors into speculative day traders, as some critics claim? Not according to a new Vanguard research paper, "ETFs: For the better or bettor?," which found that most Vanguard investors exhibit buy-and-hold behavior whether investing in a traditional index fund or ETF.
According to the company, which manages $209 billion of ETF assets and is the third largest ETF provider, "critics' presumptions about ETF trading are typically based on macro-level share turnover data that is dominated by large institutional investors at the fund level—not built on data at the individual investor level."
Using a unique data set of transactions conducted by individual investors, Vanguard researchers analyzed 3.2 million transactions in 500,000 positions held in traditional mutual fund and ETF share classes of four different Vanguard index funds from 2007 through 2011.
"Our individual investor data show that the majority of both traditional mutual fund and ETF investments are held in a prudent, buy-and-hold manner," Joel Dickson, one of the study's authors and a principal in Vanguard's Investment Strategy Group, said in a statement. "While differences exist between the characteristics of people who buy each investment type, our analysis shows that claims of speculative trading behavior among ETF investors are greatly exaggerated."
