Although traded like exchange traded funds, grantor trusts differ greatly from ETF in their portfolio management and performance. They offer many advantages over ETFs but also have many disadvantages; and thus are not suitable for all types of traders. For a better understanding, read Grantor Trust Exchange Traded Funds.
Advantages of Exchange Traded Grantor Trusts
- They let you invest in specific commodities without buying futures contracts or owning the commodity.
- They directly distribute dividends. Shareholders will receive dividends immediately after a stock in the portfolio pays dividends.
- They have low expense ratios because there is no expense involved in rebalancing or managing the portfolio.
- The shareholders also retain the voting rights for companies’ stocks held in the basket.
- They let you invest in specific sectors or markets for a long term without many additional expenses.
- They are tax efficient because the portfolio is fixed. Investors can time their taxes by timing the selling of shares.
Disadvantages of Exchange Traded Grantor Trusts
- The fixed portfolio can be a problem. As they track commodities/specific sector stocks, there is more downside risk.
- Overtime mergers and acquisitions can make the portfolio more concentrated towards a specific stock.
- Dividends are not reinvested, limiting the chances of maximizing the profit opportunities.
- Many grantor trusts operate for a fixed time and have a limited life.
- As the portfolio is fixed, they are not suitable for short-term and market timing strategies.
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