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An Exchange Traded Fund (or ETF) is an open-ended collective investment scheme, traded as a share on most global stock exchanges. A Collective Investment Scheme is a way of investing money with other people to participate in a wider range of investments than may be feasable for a individual investor and to share the costs of doing so. ...
The legal structure and makeup varies around the world, however the major common features include:
- An exchange listing and ability to trade continually
- Typically they are index-linked rather than actively managed
- The ability to handle contribution and redemptions on an in-kind basis (typically in large blocks of shares only)
These qualities provide ETFs with some significant advantages compared to traditional open-ended collective investments. The ETF’s structure allows for a diversified, low cost, low turnover index investment. This appeals to both institutional and retail investors to use as a long term hold and for selling short and hedging strategies. An open-end fund is a mutual fund which can issue and redeem shares at any time. ...
A Collective Investment Scheme is a way of investing money with other people to participate in a wider range of investments than may be feasable for a individual investor and to share the costs of doing so. ...
Typically, ETFs try to replicate a stock market index such as the S&P 500 or Hang Seng Index, a market sector such as energy or technology, or a commodity such as gold or petroleum. A stock market index is a listing of stocks, and a statistic reflecting the composite value of its components. ...
The S&P 500 is a list of 500 US corporations, ordered by market capitalization. ...
Hang Seng Index (HSI, æ’生指數) is a capitalization-weighted stock market index in the Hong Kong Stock Exchange. ...
The term Market Sector is used in economics and finance to describe a set of businesses that are buying and selling such similar goods and services that they are in direct competition with each other. ...
The word commodity is a term with distinct meanings in business and in Marxian political economy. ...
General Name, Symbol, Number gold, Au, 79 Chemical series transition metals Group, Period, Block 11, 6, d Appearance metallic yellow Atomic mass 196. ...
Nodding donkey pumping an oil well near Sarnia, Ontario, 2001 Petroleum (from Latin petra – rock and oleum – oil), crude oil, sometimes colloquially called black gold, is a thick, dark brown or greenish liquid. ...
Creation and redemption of shares Rather than the fund manager dealing directly with shareholders, institutional investors will create a portfolio of shares identical to the ETF and loan them to the fund manager. The portfolio is then incorporated in the ETF and ETF shares are created, typically a creation unit consists of 50,000 shares. An institutional investor is an investor who is an institution like a bank, insurance fund, retirement fund, or mutual fund manager. ...
ETF shares are sold and resold freely among large investors on the open market. If they purchase a sufficient amount of shares, the investor can exchange one full creation unit of ETF shares for the underlying shares of stock. The ETF creation unit is then destroyed and the underlying stocks are delivered out of the trust
The attraction of this method of dealing for the ETF fund manager is that the institutional investors cover the dealing costs in purchasing the required shares to make up the portfolio. The reason they are willing to do this is the profit they can make by arbitrage based on the trading price of shares on the secondary market. Shares will trade at a premium to net asset value if demand is high and at a discount to net asset value if demand is low. These market drivers provide the efficiency for the ETF managers as the bulk buying power of the institutional investors allows them to avoid the expense of mass share creation and deletion. In economics, arbitrage is the practice of taking advantage of a state of imbalance between two or more markets: a combination of matching deals are struck that exploit the imbalance, the profit being the difference between the market prices. ...
Usage Today ETFs present a viable alternative investment option to traditional open-ended mutual funds, especially open-ended index funds. There are many available ETFs that attempt to track all kind of indexes (such as large-cap, mid-cap, small-cap, etc), specialties (such as value and growth), industries, countries, and even commodities (while commodity funds like Gold Shares are technically not ETFs, they trade like ETFs). And more are being developed for the future. There are discussions of ETFs for other indices and commodities, as well as actively managed ETFs. A mutual fund is a company that pools money from many investors and invests the money in stocks, bonds, short-term money-market instruments, or other securities. ...
An index fund is a type of passively managed mutual fund that seeks to track the performance of a benchmark market index such as the S&P 500. ...
History The first ETF was introduced on the Toronto stock exchange in 1989. Former logo of the Toronto Stock Exchange prior to the switch to TSX. The Toronto Stock Exchange (TSX) is Canadas largest stock exchange, and the division of the TSX Group that holds senior equities. ...
There are over one hundred ETFs traded on the American Stock Exchange, with more in other countries. ETFs have been gaining popularity ever since they were introduced by the American Stock Exchange in the mid 1990s, beginning with SPY in 1993. ETFs are attractive to investors because they offer the diversification of mutual funds with the features of a stock. The popularity is likely to increase as new and more innovative ETFs are introduced. The American Stock Exchange (AMEX) is a stock exchange operated by American Stock Exchange LLC, a subsidiary of the National Association of Securities Dealers, in the United States of America. ...
The American Stock Exchange (AMEX) is a stock exchange operated by American Stock Exchange LLC, a subsidiary of the National Association of Securities Dealers, in the United States of America. ...
The 1990s refers to the years 1990 to 1999; the last decade of the 20th Century. ...
The original ETFs were set up as competitors to open-ended index funds, and subsequent ETFs have usually followed in their footsteps: they typically have very low expense ratios compared to actively managed mutual funds. They also have a lower turnover ratio, which tends to be more tax-favorable. The expense ratio of a stock or asset fund is the total percentage of fund assets used for administrative, management, advertising (12b-1), and all other expenses. ...
In business Turnover ratio can refer to either: A measure of the number of times a companys inventory is replaced during a given time period. ...
ETF managers such as Barclays and State Street typically have the highest money under management of all companies. This can raise corporate governance issues as often the largest owner of a company is a money management company which simply owns that company as part of trying to own all companies based on a belief that this strategy will do better than most others.
ETFs vs. open-ended funds An advantage of mutual funds is that they have lower costs if you only invest a little bit of money, or invest small monthly or quarterly amounts. Since ETFs are traded on the stock market, every trade has commission costs. Many mutual funds do not have such costs. If an investor likes to invest, say, $100 or $500 every month, mutual funds will likely cost less. Money Money is any marketable good or token used by a society as a store of value, a medium of exchange, and a unit of account. ...
There are many advantages to ETFs, and these advantages will likely increase over time. Most ETFs have a lower expense ratio than comparable mutual funds. Mutual funds can charge 1% to 3%, or more; index funds are generally lower, while ETFs are almost always in the 0.1% to 1% range. Over the long term, these cost differences can compound into a noticeable difference. The expense ratio of a stock or asset fund is the total percentage of fund assets used for administrative, management, advertising (12b-1), and all other expenses. ...
ETFs are also more tax-efficient than mutual funds in some jurisdictions. In the U.S., whenever a mutual fund realizes a capital gain that is not balanced by a realized loss, the mutual fund must distribute the capital gains to their shareholders by the end of the quarter. This can happen when stocks are added to and removed from the index, or when a large number of shares are redeemed (such as during a panic). These gains are taxable to all shareholders, even those who reinvest the gains distributions in more shares of the fund. In contrast, ETFs are not redeemed by holders (instead, holders simply sell their ETF on the stock market, as they would a stock), so that investors generally only realize capital gains when they sell their own shares. In finance, a capital gain is profit that is realized from the sale of an asset that was previously purchased at a lower price. ...
Perhaps the most important, although subtle, benefit of an ETF is the stock-like features offered. Since ETFs trade on the market, investors can carry out the same types of trades that they can with a stock. For instance, investors can sell short, use a limit order, use a stop-loss order, buy on margin, and invest as much or as little money as they wish (there is no minimum investment requirement). Mutual funds do not offer those features. In finance, short selling is selling something that one does not (yet) own. ...
A limit order is an order to buy or sell a security at a specific price. ...
In finance, a margin is collateral that the holder of a position in securities, options or futures contracts has to deposit to cover the credit risk of his counterparty. ...
For example, an investor in an open-ended can only purchase or sell at the end of the day at the mutual fund's closing price. This makes stop-loss orders much less useful for open-ended funds – if your broker even allows them. An ETF is continually priced throughout the day so is not subject to this disadvantage.
A more subtle advantage is that ETF's, like closed-ended funds, are immune from some market timing problems that have plagued open-ended mutual funds. In these timing attacks, large investors trade in and out of an open ended fund quickly, exploiting minor variances in price in order to profit at the expense of the long-term unit holders. With an ETF (or closed-ended fund) such an operation is not possible--the underlying assets of the fund are not affected by its trading on the market.
Top U.S. ETFs Most current U.S. ETFs are based on some index; for example, Spiders are based on the S&P 500 index. The index is generally determined by an independent company; for example, Spiders are run by State Street, while the S&P 500 is calculated by Standard & Poor's. Sometimes, a proprietary index is used. The S&P 500 is a list of 500 US corporations, ordered by market capitalization. ...
State Street Corporation (NYSE: STT) is a bank holding company based in Boston, Massachusetts. ...
The Standard and Poors Corporation (S&P), a subsidiary of McGraw-Hill, is a company that performs financial research and analysis on stocks and debt instruments. ...
The first, and most widely held (as of November 2004) ETF is the Standard & Poor's Depositary Receipt, abbreviated SPDR. Shares of SPDR, called "spiders", are traded on the American Stock Exchange under the ticker SPY. Also popular and well known are the ETFs that track the NASDAQ-100 index ("qubes") and the Dow Jones Industrial Average ("diamonds"). SPDR is an US-based exchange-traded fund. ...
The American Stock Exchange (AMEX) is a stock exchange operated by American Stock Exchange LLC, a subsidiary of the National Association of Securities Dealers, in the United States of America. ...
The NASDAQ-100 is a stock market index of 100 of the largest domestic and international non-financial companies listed on the NASDAQ stock exchange based on market capitalization. ...
The Dow Jones Industrial Average (DJIA) is one of several stock market indices created by Wall Street Journal editor and Dow Jones & Company founder Charles Dow. ...
Top 10 US-based ETFs, as of June 2005, by assets under management: Wikiquote has a collection of quotations by or about: United States Wikinews has news related to this article: United States United States government CIA World Factbook Entry for United States House. ...
- SPDRs "spiders" (SPY)
- NASDAQ 100 Trust Series 1 "qubes" (QQQQ)
- iShares MSCI EAFE Index Fund (EFA)
- iShares S&P 500 Index (IVV)
- MidCap SPDRs (MDY)
- iShares Russell 2000 Index (IWM)
- iShares Dow Jones Select Dividend Index (DVY)
- DJIA DIAMONDS Trust, Series 1 (DIA)
- iShares MSCI Japan Index (EWJ)
- iShares MSCI Emerg Mkts Index (EEM)
SPDR is an US-based exchange-traded fund. ...
The NASDAQ-100 is a stock market index of 100 of the largest domestic and international non-financial companies listed on the NASDAQ stock exchange based on market capitalization. ...
iShares Russell 2000 Index Fund is an exchange-traded fund of US stocks. ...
The Dow Jones Industrial Average (DJIA) is one of several stock market indices created by Wall Street Journal editor and Dow Jones & Company founder Charles Dow. ...
Top Republic of Korea ETFs All ROK-based ETFs, as of December 2005: The Ruins of Kunark (RoK, Kunark, or simply the Kunark expansion) was the first expansion to EverQuest; a massive multiplayer online role-playing game (MMORPG). ...
- KODEX 200
- KOSEF
- KODEX Q
- KODEX BAEDANG
- KODEX KRX 100
See also A Collective Investment Scheme is a way of investing money with other people to participate in a wider range of investments than may be feasable for a individual investor and to share the costs of doing so. ...
A mutual fund is a company that pools money from many investors and invests the money in stocks, bonds, short-term money-market instruments, or other securities. ...
Investment Trusts are companies that invest in the shares of other companies. ...
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