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Active ETFs claim bigger portion of investment flows than in 2022

Yahoo Finance Live anchor Seana Smith breaks down the differences between mutual finds and ETFs.

Video transcript

[AUDIO LOGO]

SEANA SMITH: If you are looking to invest in the stock market, you don't want to buy a specific stock, you may turn to a mutual fund or an ETF, an exchange traded fund. Now, the two share many similar characteristics. They both represent a basket of stocks or bonds. And as a result, both typically viewed as less risky than when you choose to invest in a single stock. Both are managed by fund managers.

But that's about where some of those similarities stop. Mutual funds have been around since 1920s. ETFs, they're relatively new in comparison. The first Spider S&P 500 ETF, ticker SPY, that launched in January of '93. So here's the advantage over mutual funds when it comes to ETFs. ETFs can be bought and sold throughout the trading day compared to mutual funds, which can only be purchased at the end of the trading day.

There are two main types of ETFs that we want to talk about, active and passive. So passive ETFs, they typically track an index here that's in the portfolio is updated periodically. On the flip side, you have active ETFs. And like their name implies, actively managed by their investment managers. As a result, investing in active ETFs has that a slightly more human touch. And so far this year, seems like that is what more and more investors are wanting to see. More investors are pouring their money into active ETFs this year than they did last year in 2022.