What is an ETF?

Question

I just need a highlevel description of what they are and how they work

Answer 1

ETF is an exchange-traded fund. There are two types of exchange-traded funds. Index ETFs hold a basket of securities comprising a popular index (DJIA, S&P 500, MSCI Japan, etc.) and therefore track that index very closely and trade very closely to their net asset value (NAV). Closed-end funds are actively managed and may hold less liquid positions (there are even funds that invest in syndicated loans), so their share prices may deviate from NAV, sometimes as far as 15-20%.

Unlike mutual funds, ETFs trade intraday and can be sold short; many (especially index ETFs) are optionable. Also unlike mutual funds, the management company of an ETF has no obligation to redeem shares at NAV, so there is no guaranteed liquidity.

Disregard the answer by LERUTH9092; he is talking about EFT (electronic funds transfer)...

Answer 2

ETF = Exchange Traded Fund

Exchange Traded Fund. A fund that tracks an index, but can be traded like a stock. ETFs always bundle together the securities that are in an index; they never track actively managed mutual fund portfolios (because most actively managed funds only disclose their holdings a few times a year, so the ETF would not know when to adjust its holdings most of the time). Investors can do just about anything with an ETF that they can do with a normal stock, such as short selling. Because ETFs are traded on stock exchanges, they can be bought and sold at any time during the day (unlike most mutual funds). Their price will fluctuate from moment to moment, just like any other stock's price, and an investor will need a broker in order to purchase them, which means that he/she will have to pay a commission. On the plus side, ETFs are more tax-efficient than normal mutual funds, and since they track indexes they have very low operating and transaction costs associated with them. There are no sales loads or investment minimums required to purchase an ETF. The first ETF created was the Standard and Poor's Deposit Receipt (SPDR, pronounced "Spider") in 1993. SPDRs gave investors an easy way to track the S&P 500 without buying an index fund, and they soon become quite popular.

Answer 3

An exchange-traded fund (ETF) is a basket of securities designed to replicate the performance of a stock or bond index (e.g., S&P 500, Dow Jones Industrial Average). ETFs are listed on an exchange and can be traded intra-day at a price set by the market.

ETFs add the flexibility, ease, and liquidity of stock trading to the benefits of traditional index fund investing.

To better understand ETFs, it may be helpful to understand index funds, which share some similarities.

Both ETFs and Index Funds:
Allow you to buy an interest in an entire portfolio of securities by purchasing a single security
Are passively managed and have limited expenses
Are designed to track the performance of an unmanaged index
Track a broad market index or target a specific sector or segment of the market
Track markets in various regions or countries

Answer 4

ETF stands for exchange-traded fund. These trade like stocks at prices that change during hours the stock market is open, unlike mutual funds that trade at their closing price at the end of the trading day. ETF's are baskets of stocks representing an index and each has its own symbol. For example the symbol VTI stands for Total Stock Market Index. EEM is an index of emerging market stocks. IBB is an index of Biotech stocks. You pay the same commission as for a stock and these trade on stock exchanges.

Unlike a mutual fund, the index is not managed - i.e. they don't sell underperformers to buy better stocks. This keeps expenses down. Their main advantage is that they have low expense ratios compared to mutual funds. Most very large mutual funds behave like an index anyway yet have much higher expenses. Very few actively managed mutual funds outperform the corresponding index.

Answer 5

Electronic Transfer of Funds, If you file your taxes on the internet and have IRS send your refund to your saving or checking account directly it is an ETF. Online bill paying services are ETF's. PayPal is basically an ETF service. If paying out, funds from your account are sent from your bank to the bank of the recipient.

Answer 6

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Answer 7

what needs to be addressed is the fact that the price of an ETF has nothing to do with its holdings, but rather its perceived value to buyers and sellers just like any other stock.

Answer 8

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