You asked for it. You got it. The ETF vs. mutual funds debate from all angles. Only this time you get the facts from the ETF Guide and the Mutual Fund Guide (that's me).

I couldn't say it better myself, so here's what the ETF Guide writes on his blog, "Mark Kennedy meet Lee McGowan. ETF Guide meet Mutual Fund Guide. Lee and I collaborated on our latest article comparing ETFs to mutual funds. The new piece gives you the story from both sides. Is an ETF better than a mutual fund or is a mutual fund better than an ETF? We both have our opinions, as you will see."

Mark goes on to say, "But wait, there's more! We also give you the inside scope on the tax implications of each product, the benefits, the risks, the whole enchilada. So without further ado..."

Is An ETF Better Than a Mutual Fund?

Just like any writer, I receive both positive and negative emails and comments from readers. You should see the latest zinger.  I have to admit, I wish the statement would have included some evidence backing up his comments. Rather than deleting what he wrote, I've decided to share it.

A couple of lines from Guest Dan's comments include telling me that I "don't know anything" and that I should let "someone write an article that doesn't like mutual funds." You can read Guest Dan's entire statement (and a few other readers' statements) in "Readers Respond."

While I would like to find Dan and ask him what he means by "tell the truth" and ask him why I would want a biased person to write an article, I think the more productive question would be to ask him to comment on my original question that he didn't answer: "As with any investment structure, mutual funds have their advantages and disadvantages. What do you think are the most disadvantageous features of mutual funds?"

So why am I bothering highlighting this comment when, until now, I didn't highlight the fact that my blog was named a "Top Investment Blog" by an ETF blogger (yes, an ETF blogger of all people)? Well, I, selfishly, want to highlight a blog post that might have helped Guest Dan understand my views on mutual funds and ETFs.

Vanguard is cutting edge. They have a Facebook page, a blog, e-newsletters and now, an iPhone/iPod Touch application. So, if you have an account with Vanguard and you're compelled to view your account online and on the go: "There's an app for that."

Tell us if you are interested in viewing your investment accounts on your phone:

If you understand the ETF structure, then you know when an ETF resembles a closed-end fund. If you own the more exotic or specialty ETFs or if you are considering owning one of these ETFs (ETFs that do not hold traditional individual securities such as stocks), then do yourself a favor and understand the potential pitfalls of the ETF structure --  such as when an ETF resembles a closed-end fund.

Why? Well, let's look at an example of an ETF that behaves like a closed-end fund.  Recently, the Powershares DB US Dollar Bullish (UUP) stopped issuing new shares (as of November 5^th).  UUP even stopped trading for a period during the day on November 5^th.

The fact that UUP stopped issuing new shares is not, unfortunately, a new problem for ETFs. Several commodity-based ETFs have had the same issue over the past year. Why is this a problem?

The problem is that many advocates of ETFs will tell us that ETFs are priced at or close to the value of the underlying holdings of the ETF. The creation-redemption feature of the ETF, in part, allows for this benefit.  If there is a dislocation in the market that disrupts the creation-redemption feature, then you have an ETF that resembles a closed-end fund, which defeats this espoused feature of the ETF and you are not getting what you pay for which are the underlying securities (a similar issue exists with closed-end funds).

Fortunately, for UUP investors, the problems were resolved by the end of the trading day.  But what this tells the ETF product manufactures is that the kinks of the ETF structure need some work.

Want to learn more? Read the basics:

ETFs Challenging Mutual Funds?

ETFs vs. Mutual Funds: An Active vs. Passive Debate

Read the more advanced:

New Challenges for Commodity ETFs

An Emerging Problem for this ETF