Exchange-traded funds (ETFs) typically include embedded expenses that may reduce their net asset value and, in turn, impact performance at both the fund and client portfolio level. These expenses may include, but are not limited to, management fees, custodian fees, legal expenses, and accounting or audit-related costs. ETF expenses may change at the discretion of the issuing firm and are subject to variation over time.
ETF performance may deviate from its intended index or benchmark due to several factors, including:
(a) internal expenses and trading costs not reflected in the benchmark;
(b) temporary unavailability of underlying index components;
(c) supply and demand mismatches in the ETF market causing the shares to trade at a premium or discount relative to the fund’s net asset value.
Certain ETF strategies may involve asset classes such as fixed income, commodities, foreign securities, or American Depositary Receipts (ADRs), which can carry higher internal costs or limited transparency in pricing. Market quotations for these assets may be delayed, unavailable, or unreliable.
Clients should also be aware of liquidity risks — including, but not limited to:
(a) periods of extreme market volatility;
(b) lack of active market participants;
(c) exchange-level technical issues or trading halts;
(d) delisted or suspended securities;
(e) portfolio positions that are large relative to a security’s average daily trading volume.
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