exchange-traded fund


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Exchange-Traded Fund

A security that represents all the stocks on a given exchange. For example, an exchange-traded fund may track the Standard and Poor's 500. The organization issuing the exchange-trade fund owns each of the stocks traded on the S&P 500 in approximate ratio to their market capitalization. ETF shares can be bought, sold, short-sold, traded on margin, and generally function as if they were stocks. Investors use exchange-traded funds as a way to easily diversify their portfolios at relatively low cost. See also: SPDR.

exchange-traded fund (ETF)

A mutual fund whose shares trade on a securities exchange, generally at or very near net asset value per share. Unlike ordinary mutual funds that continually issue and redeem their own shares, exchange-traded funds are similar to closed-end investment companies whose shares trade among investors. The share price is maintained at or near net asset value because of the ability of large investors to convert ETF shares to the underlying stocks or to trade underlying stocks for shares of the ETF. See also creation unit.
Case Study The exchange-traded fund has become a very popular investment, in large part because of the low expenses and great flexibility. Annual expense ratios for ETFs are often lower than even the lowest-cost index funds. ETFs can be used either to buy or short the overall market or a specific segment of the market. These funds can also be used to hedge an investment position. For example, an investor holding a diversified portfolio of stocks can hedge an expected market decline by shorting shares of an exchange-traded fund that replicates the S&P 500. Investors with more specialized portfolios have the option of using other ETFs that track a more focused index. The market price of an ETF efficiently tracks a stock index because large investors are permitted to swap ETF shares (generally, 50,000 shares) for the underlying stocks that compose the index, and vice versa. If an ETF market price moves below its net asset value, investors will swap the ETF shares for shares of stock composing the ETF portfolio. Conversely, if an ETF market price moves above its net asset value, investors will swap shares of stock that underlie the index tracked by the ETF for shares of the ETF. The swapability of ETF shares for shares that compose the index keeps the market price of the exchange-traded fund near its net asset value.
References in periodicals archive ?
through its family of more than 140 domestic and international exchange-traded funds, which seek to outperform traditional benchmark indexes while providing advisors and investors access to an innovative array of focused investment opportunities.
To illustrate, suppose you were to invest $l0K in each of a no-load actively managed equity mutual fund, a no-load index fund and an exchange-traded fund.
Claymore Exchange-Traded Fund Trust, on behalf of ULQ, entered into a new investment advisory agreement with Claymore and Claymore, on behalf of ULQ, entered into a new investment sub-advisory agreement with Mellon Capital.
For Claymore/BNY Mellon Frontier Markets ETF ("FRN"), Claymore/Zacks International Multi-Asset Income Index ETF ("HGI"), and Claymore/AlphaShares China Real Estate ETF ("TAO") shareholders of each ETF approved a new investment advisory agreement between Claymore Exchange-Traded Fund Trust 2 and Claymore, on behalf of each ETF.
PowerShares Dynamic Large Cap Value Portfolio is an exchange-traded fund incorporated in the USA.
First Trust Exchange-Traded Fund II will transfer the listing of First Trust DJ STOXX([R]) Select Dividend 30 Index Fund (FDD), First Trust FTSE EPRA/NAREIT Global Real Estate Index Fund (FFR) and First Trust Dow Jones Global Select Dividend Index Fund (FGD) to NYSE Arca on or about November 6, 2008.
Actively managed exchange-traded funds will be the next big innovation to hit the stock market, Lawrence G.
Active investors can get further daily insight by reviewing the detailed technical analysis-based exchange-traded fund charts, performance and relative ratings - all within an innovative "one-screen" look-and-feel interface.
The Bank of New York announced that the European Exchange-Traded Fund Company plc has selected the Bank as its global custodian and its fund administrator through the Bank's joint venture company, AIB/BNY Fund Management (Ireland) Limited.
FTA) announced that the shareholders of First Trust Value Line([R]) 100 Fund (AMEX:FVL), at a special meeting of shareholders, voted to approve the reorganization of FVL with and into First Trust Value Line([R]) 100 Exchange-Traded Fund (FVLEF), an exchange-traded fund and newly created series of First Trust Exchange-Traded Fund (FTETF).