Our investment portfolios are constructed using Exchange Traded Funds (ETFs). An ETF is an investment vehicle which is constructed like a mutual fund but trades like an individual security on a stock exchange. ETFs provide instant investment across all asset classes including stocks, bonds, gold, commodities, real estate and currencies. With almost 2000 ETFs in the world today and growing, they are amongst the fastest growing investment vehicles because they provide a compelling combination of low costs, performance, diversification and tax-efficiency.
ETFs used by IceCap Asset Management have a cost advantage on average of about 1.5% relative to actively managed mutual funds. This cost advantage has a significant impact on a portfolio’s performance over time. Fortunately costs are among the few controllable variables in a portfolio’s returns and ETFs provide an opportunity to enhance your net returns by reducing your investment expenses.
When you invest in a mutual fund, you are asking the manager to make "active" decisions so that your return will be better than that of an index or benchmark. The index or benchmark is called a "passive" investment and is easily available to all investors through ETFs. Unfortunately for active managers, few are able to consistently produce returns greater than their benchmark over the long term. In essence, most investors are not only paying excessive fees within their mutual funds, but they are also paying for lower returns than what they could otherwise achieve through passive investments in ETFs. ETFs address the problem of benchmark underperformance by actively managed mutual funds.
ETFs allow investors to gain exposure to an entire asset class with a single security, thereby avoiding the risks of owning individual stocks. ETFs own most or all of the securities that constitute an index, and exact portfolio holdings are disclosed on a daily basis, providing full transparency.
Tax efficiency is a critical issue that is often overlooked by investors. Delaying the taxation of appreciating assets significantly enhances after-tax returns over time. ETFs are among the most tax-efficient securities due to their low internal portfolio turnover and their unique method of creating and redeeming shares, which allows the ETF manager to continuously purge the lowest-basis tax lots from the portfolio. As a result of these factors, ETFs are able to minimize, and in most cases avoid altogether, the taxable gain distributions that have created unwanted tax liabilities for investors in actively-managed mutual funds.
IceCap Asset Management has no obligation or proprietary affiliation with any specific ETF provider. As an independent manager, we choose ETFs from a broad spectrum of offerings that meet the criteria of our investment process, strategy and outlook.