therefore, investors can buy or sell their shares in the fund-only once a day. In contrast, ETFs trade continuously. Moreover, like other shares, but unlike mutual funds, ETFs can be sold short or purchased on margin. ETFs also offer a potential tax advantage over mutual funds. When large numbers of mutual fund investors redeem their shares, the fund must sell securities to meet the re- demptions. This can trigger large capital gains taxes, which are passed through to and must be paid by the remaining shareholders. In contrast, when small investors wish to redeem their position in an ETF, they simply sell their shares to other traders, with no need for the fund to sell any of the underlying portfolio. Again, a redemption does not trigger a stock sale by the fund sponsor. ETFs are also cheaper than mutual funds. Investors who buy ETFs do so through bro- kers rather than buying directly from the fund. Therefore, the fund saves the cost of mar- keting itself directly to small investors. This reduction in expenses translates into lower management fees. For example, Barclays charges annual expenses of just over 9 basis points (i.e., .09%) of net asset value per year on its S&P 500 ETF, whereas Vanguard charges 18 basis points on its S&P 500 index mutual fund. There are some disadvantages to ETFs, however. Because they trade as securities, there is the possibility that their prices can depart by small amounts from net asset value. This discrepancy cannot be too large without giving rise to arbitrage opportunities for large traders, but even small discrepancies can easily swamp the cost advantage of ETFs over mutual funds. Second, while mutual funds can be bought at no expense from no-load funds, ETFs must be purchased from brokers for a fee. ETFs have to date been a huge success. Most trade on the Amex and currently account for about two-thirds of Amex trading volume. So far, ETFs have been limited to index port- folios. However, it is widely believed that Amex is in the process of developing ETFs that would be tradeable versions of actively managed mutual funds.     4.7 MUTUAL FUND INVESTMENT PERFORMANCE: A FIRST LOOK   We noted earlier that one of the benefits of mutual funds for the individual investor is the ability to delegate management of the portfolio to investment professionals. The investor retains control over the broad features of the overall portfolio through the asset allocation I. Introduction 4. Mutual Funds and Other Investment Companies The McGraw−Hill Companies, 2001           118 PART I Introduction     decision: Each individual chooses the percentages of the portfolio to invest in