ANSWERS: 1
  • Exchange traded funds, or ETFs, have become one of the most popular investment and trading asset classes. The broad reach of ETFs provide many different ways for investors to participate in different markets.

    Identification

    According to the Securities and Exchange Commission, ETFs are open-ended investments like mutual funds. The difference is that ETF shares are not sold directly to investors. Shares are created in large blocks of 50,000 shares and sold to institutions.

    Function

    The institution that has purchased the created units then sells the shares on a stock exchange where they trade like any security. Individual and corporate investors can buy and sell ETF shares like any other stock exchange-traded security.

    Features

    ETFs are not actively managed. The funds shares will track a specific index such as the S&P 500 or a commodity price like the value of gold. ETFs are available that track many indexes and asset classes.

    History

    The SPDR S&P 500 was the first ETF, starting in 1993. By 2004, there were about 150 ETFs, then the number grew rapidly to more than 800 available by the end of 2009.

    Considerations

    Traders are attracted to ETFs because they can be rapidly traded as markets move up and down. Long term investors can also use exchange traded funds to set up balanced, asset-allocated portfolios.

    Potential

    ETFs allow investors to easily take positions in a diverse range of sectors and asset classes. For examples, ETFs are available that track renewable energy stocks, the prices of gold and oil and stock markets of specific countries. There are also ETFs available, called inverse funds, that increase in value if the underlying index declines.

    Source:

    SEC: Exchange Traded Funds

    ETF Guide.com: FAQs

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