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There’s More Than One Way for Investors to Stay Active

Help your clients understand the differences between active exchange-traded funds, mutual funds, and separately managed accounts.

Investing involves many personal decisions that are unique to each investor. After determining their individual risk tolerance and specific investment objectives, many investors rely on professionally managed portfolios in the form of mutual funds, exchange-traded funds (ETFs), and/or separately managed accounts (SMAs). These investment vehicles have similarities and differences that could make them more or less appealing to investors for a variety of reasons. The table below illustrates some common considerations for each vehicle.

  Mutual Funds ETFs SMAs
Professionally Managed Combined assets and holdings professionally managed on behalf of all shareholders Combined assets and holdings professionally managed on behalf of all shareholders Professionally managed portfolios, but each investor directly owns the individual securities and can customize the holdings
Minimum Investment Relatively low minimum investment for some share classes (minimums vary by share class) No minimums; can own as few as one share Generally higher minimum platform requirements and to fully implement the individual investments within the portfolio
Product Fees Aside from management fees, expenses often include additional shareholder servicing costs, and total expenses vary by different share class Expense ratios tend to have fewer layers of fees, no share classes, and typically without shareholder servicing costs Tiered expenses often based on the amount of assets invested individually but may include additional platform expenses
Trading Purchased and redeemed once per day at market close (generally 4 p.m. ET); Short-term and/or excessive trading restrictions may apply Continuous trading throughout the day on exchanges; No short-term and/or excessive trading restrictions Underlying holdings purchased during the day for exchange-listed securities and once per day for mutual fund holdings; Short-term and/or excessive trading policies vary by holding type
Tax Efficiency Portfolio turnover may cause taxable gains in order to meet daily shareholder cash redemptions—capital gain distributions from manager transactions can also occur from manager activity within the portfolio Shareholder activity generally has no role in capital gains because shares are typically created or redeemed through security delivery (rather than cash), but capital gains from manager transactions can still occur Investors can customize the timing of individual security transactions based on their own tax situation or implement “tax loss harvesting” strategies
Distributions and Reinvestment Distributions are typically reinvested automatically on the ex-date at net asset value (NAV), including the purchase of partial/fractional shares Distribution reinvestment and fractional share purchases generally require separate brokerage services bought at market prices (not NAV)—services are not always available and may not occur on the ex-date Distributions only come directly from the underlying securities, often paid as cash, with reinvestments done through new purchase allocations to specific holdings
Variety of Investment Strategies Wide variety of investment strategies with greater allowances for underlying holdings variability and breadth within portfolios Wide variety of investment strategies, but with more limitations on underlying holdings, which currently prevent some strategies from being offered as ETFs Platform limitations, minimum investment requirements, and holdings tradability can lead to fewer strategies available for investors
How Do I Buy? Can buy direct through a brokerage, a fund service, or a financial advisor/intermediary—also, often available in retirement accounts like 401(k) plans Bought on an exchange through a brokerage account, similar to stocks. Generally not used in 401(k)s unless an “in plan” brokerage service is available Typically accessed through a financial advisor/intermediary using a dedicated platform designed for account management and extensive recordkeeping

For educational purposes only, not intended as investment or tax advice. The table above is not a comprehensive list of investment vehicle features, benefits, or risks. Vehicle structures, portfolio strategies, investment objectives, and risks will vary. Consult your financial advisor or tax professional for more information.

Our Commitment: A Rigorous Approach, No Matter the Vehicle

As the investment landscape evolves, T. Rowe Price strives to evolve with it. That’s why we offer investors a variety of investment vehicles so you can choose the one that best suits your clients individual needs. But whether it’s a mutual fund, ETF, or SMA, our clients benefit from a global team of experienced investment professionals focused on in-depth research, careful risk management, and a strategic investing approach.

Consider the investment objectives, risks, and charges and expenses carefully before investing. For a prospectus or, if available, a summary prospectus containing this and other information, visit Read it carefully.

Important Information

All investments are subject to market risk, including the possible loss of principal. Additional risks vary depending on the investment objectives and strategies. When applicable, please refer to a prospectus for more information.

This material is provided for general and educational purposes only and is not intended to provide legal, tax, or investment advice. This material does not provide recommendations concerning investments, investment strategies, or account types; it is not individualized to the needs of any specific investor and not intended to suggest any particular investment action is appropriate for you, nor is it intended to serve as the primary basis for investment decision-making. T. Rowe Price group of companies, including T. Rowe Price Associates, Inc., and/or its affiliates, receive revenue from T. Rowe Price investment products and services.

ETFs are bought and sold at market prices, not NAV. Investors generally incur the cost of the spread between the prices at which shares are bought and sold. Buying and selling shares may result in brokerage commissions, which will reduce returns.

T. Rowe Price Investment Services, Inc., distributor, T. Rowe Price mutual funds and ETFs. T. Rowe Price Associates, Inc., investment adviser, T. Rowe Price Separately Managed Accounts.

© 2022 T. Rowe Price. All Rights Reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, and the Bighorn Sheep design are, collectively and/or apart, trademarks of T. Rowe Price Group, Inc.


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