Benefits of Exchange Traded Grantor Trusts : NobleTrading Blog

Tuesday, February 2, 2010

Benefits of Exchange Traded Grantor Trusts

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.