ADMS 3541 Lecture Notes - Lecture 31: Mutual Fund
2 Mar 2020
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Document Summary
When an etf might be the best choice. Sectors that have a narrow dispersion of returns from the mean do not offer stock pickers an advantage when trying to generate market-beating returns. The performance of all companies in these sectors tends to be similar. For these sectors, the overall performance is fairly similar to the performance of any one stock. The utilities and consumer staples industries fall into this category. In this case, investors need to decide how much of their portfolio to allocate to the sector overall, rather than pick specific stocks. Since the dispersion of returns from utilities and consumer staples tends to be narrow; picking a stock does not offer a sufficiently higher return for the risk that is inherent in owning individual securities. Since etfs pass through the dividends that are paid by the stocks in the sector, investors receive that benefit as well.
