Myth #1: ETFs only track traditional market-weighted indexes like the S&P 500. Truth: Smart Beta ETFs give investors low-cost access to strategies targeting higher returns or reduced risk, similar to the benefits sought by some actively managed funds. There are also ETFs that hold baskets of assets by sector, such as health care or technology, ETFs that invest by region, and ETFs for the fixed income market.
Myth #2: ETFs pose liquidity risks to the market. Truth: ETFs generally have greater liquidity, or availability to be quickly bought or sold, than mutual funds. Depending on the composition of the ETF, some ETFs are more liquid than others. For example, ETFs that invest in stocks tend to be more liquid than ETFs that invest in alternatives.