Which statement regarding exchange-traded funds (ETFs) is accurate?

The accuracy of the statement regarding exchange-traded funds (ETFs) lies in their cost structure compared to actively managed portfolios. ETFs are generally designed to replicate the performance of a specific index or benchmark and are passively managed, which usually leads to lower operating expenses and management fees compared to actively managed funds. This cost efficiency is one of the key reasons investors are often attracted to ETFs.

In contrast, actively managed portfolios typically involve higher fees because they require a team of professionals to make investment decisions and manage the assets continuously. Investors encounter costs such as management fees, transaction fees, and other operational expenses that can significantly impact returns. Since ETFs are passively managed, they do not incur the same level of overhead.

Choosing ETFs can therefore be a more cost-effective option for investors who seek to invest in diversified portfolios without incurring the higher fees associated with active management.