NASAA Series 66 Uniform Combined State Law ExaminationClient Investment Recommendations and StrategiesEasy
A client, aged 45, is evaluating various investment vehicles for their long-term growth portfolio. They are particularly interested in an investment that offers professional management, diversification, and trades on an exchange throughout the day, providing liquidity. Which of the following investment vehicles best fits this description?
- AExchange-Traded Fund (ETF)
- BUnit Investment Trust (UIT)
- COpen-end mutual fund
- DHedge fund
Show answer & explanationAnswer & explanation
Correct answer: A. Exchange-Traded Fund (ETF)
ETFs offer professional management, diversification, and trade like stocks on an exchange throughout the day, providing intra-day liquidity, which aligns with the client's preferences.
Why the other options are wrong
- B. UITs are unmanaged portfolios with a fixed termination date and do not trade actively on an exchange after their initial offering.
- C. Open-end mutual funds are professionally managed and diversified but do not trade on an exchange throughout the day; they are bought and sold at NAV at the end of the day.
- D. Hedge funds are professionally managed but often have high minimum investments, limited liquidity, and are typically only available to accredited investors, not generally trading on public exchanges.
Exchange-Traded Fund (ETF)
An investment fund that holds a portfolio of assets and trades like a common stock on a stock exchange.
- Offers diversification and professional management.
- Trades throughout the day on exchanges.
- Typically has lower expense ratios than actively managed mutual funds.
Memory trick: ETFs are Easy To Find for flexible trading.