NEW YORK (TheStreet) -- When explaining the impressive rise of the ETF industry, most are quick to note the major cost differentials and potential tax efficiencies as the primary advantages of exchange-traded products over traditional actively-managed mutual funds. While these factors have certainly been instrumental in growing ETF assets in recent years, there are some other distinguishing aspects of ETFs that make them more appealing than mutual funds to more active investors.
ETFs trade like stocks, which to most means that they can be bought and sold throughout the day at a price determined on the open market, instead of at the end of the session at net asset value. But it also means that they can be sold short, thereby significantly increasing the depth and complexity of trading strategies available to ETF investors (see Five Advantages Of ETFs Over Mutual Funds ).
Lingering concerns about the stability of Europe and fresh worries about a conflict in Korea have hammered equity markets over the last month, as virtually every corner of the globe and every sector has tumbled. But that doesn't mean that every investor has lost his shirt over the last four weeks; many who bet on a downward correction have turned a nice profit as asset prices have crumbled. Investors who amplified short exposure through leveraged ETFs have made a killing thanks to the recent wave of risk aversion (see Three Leveraged ETFs Up 50% During The Correction ).
Short selling and leveraged ETF investing are, of course, for those investors with an above average appetite for risk. But there are ETF plays all along the risk tolerance spectrum that can be useful in a bearish environment. In recent weeks, we outlined two market neutral ETF trades designed to profit from weakness in the eurozone relative to the rest of the region:
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