Exchange-Traded Grantor Trusts

Exchange-traded grantor trusts are a type of security that is very similar to an exchange-traded fund. However, with an exchange-traded grantor trust, you are going to have a direct ownership in an underlying basket of assets. This type of investment provides some advantages as well as some drawbacks to the investor. Here are the basics of exchange-traded grantor trusts.

Exchange-Traded Grantor Trusts

With an ETF, you own a share in a portfolio of underlying securities. However, with the exchange-traded grantor trust, you are actually going to be considered a shareholder of the underlying securities. This means that you are going to have all of the benefits that come with being a traditional stockholder. You will be able to receive dividends and have voting rights. With an ETF, you are not going to get either one of these benefits. With an exchange-traded grantor trust, the portfolio of securities is fixed. This means that the management team cannot add to nor subtract from the securities that are held in the trust. Once it is formed, it is set in stone.


This type of investment provides several benefits to investors. One of the big advantages of this type of investment is that there are low costs involved. The exchange-traded grantor trust does not have much of a need for professional management. Since the investments in the trust are fixed, the management team cannot decide to sell stocks or buy new ones. Since there is no need for professional management, the investment can significantly lower the costs to investors.

Another advantage of this type of investment is that you will be able to receive dividends. With ETFs, you do not actually receive dividend payments. Therefore, if you are the type of investor who wants to create a source of passive income for yourself, the exchange-traded grantor trust could be something that you want to consider.

Another big advantage of this type of investment is that it allows you to invest in commodities. Exchange-traded grantor trusts regularly hold direct ownership of commodities such as oil or gold. The average investor would have to purchase a futures contract or physically own the commodities in order to get involved in such investments on her own. The exchange-traded grantor trust, though, allows you easy access to commodities without all of the hassles.

This type of investment also provides tax efficiency to investors. Since securities are not being bought and sold in the portfolio, it does not create any capital gains taxes.


One of the disadvantages of this type of investment is that you cannot reinvest your dividends. This makes it difficult to grow your portfolio other than through capital appreciation.

Another disadvantage of being involved with an exchange-traded grantor trust is that you will be inundated with paperwork. Since you are actually going to be an owner of each stock in the portfolio, you will continuously be getting annual reports and other documentation from these corporations.

blog comments powered by Disqus