ETFs offer a wide range of options along the risk spectrum, from conservative bond to aggressive sector specific.
An ETF’s true liquidity is determined by the liquidity of its underlying assets, not just how frequently it trades.
For active ETFs, portfolio managers decide which securities to include and when to buy or sell them.
Exchange-traded funds (ETFs) continue to grow in popularity. An estimated 16.9 million, or about 13% of US households, owned ETFs in 2024, according to the Investment Company Institute (ICI).1 But not all investors may completely understand ETFs. Here’s the truth about some common ETF misconceptions.
That's just like a mutual fund. There are a wide range of ETF along the risk spectrum from conservative bond to more aggressive sector specific. An investor can choose the appropriate ETF that aligns with their risk tolerance.
Some investors think that ETFs with low trading volumes or smaller assets under management (AUM) may be difficult to trade. While secondary market trading volume can enhance accessibility, the core liquidity of any ETF is tied to the stocks, bonds, or other instruments it owns.
When ETFs were first introduced, they were mostly passive, meaning they followed the market by tracking indexes like the S&P 500. Now there are also many actively managed ETFs, which give portfolio managers the flexibility to handpick investments and adjust holdings, aiming to respond to market conditions. Active ETFs offer the potential for reduced drawdowns (the decline in an investment’s value from its peak to trough) and enhanced performance — while still maintaining the core benefits of an ETF like liquidity, transparency, and tax efficiency.
While ETFs are known for their low expense ratios, investors should consider additional factors such as transaction fees and bid-ask spreads — if the ETF is trading at a premium or discount.
Yes, ETFs can be bought and sold throughout the day and be used for short-term trading. But they can also be used for long-term growth, consistent income, diversification, inflation hedging, and to manage market volatility. ETFs can also help manage investment taxes too. Capital gains distributions have been less frequent and smaller for US equity ETFs.2 In some instances, capital gains may be distributed, but they've been few and far between because of the ETF creation and redemption process.
Explore Invesco’s full range of ETF solutions and find the right fit for your investment strategy.
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Important information
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All investing involves risk, including the risk of loss.
Past performance does not guarantee future results.
Investments cannot be made directly in an index.
This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.
The opinions referenced above are those of the author as of May, 2025. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations.
There are risks involved with investing in ETFs, including possible loss of money. Index-based ETFs are not actively managed. Actively managed ETFs do not necessarily seek to replicate the performance of a specified index. Both index-based and actively managed ETFs are subject to risks similar to stocks, including those related to short selling and margin maintenance. Ordinary brokerage commissions apply. The Fund's return may not match the return of the Index. The Funds are subject to certain other risks. Please see the current prospectus for more information regarding the risk associated with an investment in the Funds.
Investors should be aware of the material differences between mutual funds and ETFs. ETFs generally have lower expenses than actively managed mutual funds due to their different management styles. Most ETFs are passively managed and are structured to track an index, whereas many mutual funds are actively managed and thus have higher management fees. Unlike ETFs, actively managed mutual funds have the ability react to market changes and the potential to outperform a stated benchmark. Since ordinary brokerage commissions apply for each ETF buy and sell transaction, frequent trading activity may increase the cost of ETFs. ETFs can be traded throughout the day, whereas, mutual funds are traded only once a day. While extreme market conditions could result in illiquidity for ETFs. Typically they are still more liquid than most traditional mutual funds because they trade on exchanges. Investors should talk with their financial professional regarding their situation before investing.
Invesco does not offer tax advice. Please consult your tax adviser for information regarding your own personal tax situation.
Diversification does not guarantee a profit or eliminate the risk of loss.
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