ETF Exchange Traded Funds
ETF Exchange Traded
Funds
Exchange Traded
Funds, or ETFs, are investment vehicles that are traded on stock
exchanges, much like stocks. An Exchange Traded Fund holds assets
such as stocks or bonds, and trades at approximately the same price
as the net asset value of its underlying assets over the course of
the trading day. By owning ETFs, investors get diversification of an
index fund, as well as often the ability to sell short, buy on
margin, and purchase as little as one share. One of the most widely
known Exchange Traded Funds is called the Spider, or SPDR. As of
2011, there were approximately 1,700 Exchange Traded Funds on U.S.
exchanges.
Exchange Traded
Funds offer public investors an undivided interest in a pool of
securities and other assets, and thus are similar in many ways to
traditional mutual funds. Although most ETFs are index funds that
hold securities and attempt to replicate the performance of a stock
market index, there are several other types of Exchange Traded
Funds. One type of ETF is the Commodity ETF or Exchange Traded
Commodities. Commodity ETFs invest in commodities, such as precious
metals and futures. Among the first of this type of ETF was the gold
exchange traded funds, which have been offered in a number of
countries. Another type, Bond
Exchange Traded Funds, invest in U.S. Government bonds.
Many ETFs are
country or region-specific thereby allowing investors ability to
invest in various markets in a relatively simple manner. This can be effective for certain types of investors and
overall asset allocation plans.
Because Exchange
Traded Funds trade on an exchange, each transaction is generally
subject to a brokerage commission. ETFs do, however, typically have
a lower expense ratio than comparable mutual funds. This is because
not only do Exchange Traded Funds often have lower shareholder
related expenses, but also because they do not have to invest in
cash contributions or fund cash redemptions, and therefore they do
not have to maintain a cash reserve for redemptions, thus saving on
brokerage expenses. In addition, in many cases ETFs are more tax
efficient than conventional mutual funds in the same asset classes
or categories.