Advisors looking for cost-effective options for building diversified portfolios are continuing to turn to exchange-traded funds. And given their competitive strengths, it's no wonder ETF assets in the U.S. grew at nearly 40% compound annual growth rate (CAGR) from 1998 to 2009. ETF assets now total almost $1 trillion and represent 45% of total passive fund assets in the United States.

ETFs combine the benefits of an index mutual fund with the flexibility of a stock: they offer continuous pricing and intra-day trading; they can be borrowed and sold short; and in comparison to mutual funds, ETFs generally offer lower expense ratios, as well as greater holdings transparency and tax efficiency. When it comes to trading, however, there are some considerations advisors can take into account to make their utilization of these vehicles more efficient.

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