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 ?
Exchange-traded funds will henceforth be available through Schwab Index Advantage, including low investment costs, a broad range of asset classes, transparency and timeliness of trades.
Exchange-traded funds will not always be the cheapest investments, particularly for large plans, Herman says.
Exchange-traded funds take the indexing concept one step further by combining the best of three worlds -- mutual fund investing, index investing and individual stock ownership -- and throwing in a few extra perks.
ETC's ETF-in-a-Box[TM] Solution is a turnkey platform that provides time-sensitive and cost-effective methods to bring an exchange-traded fund to market.
TheStreet Ratings Guide to Exchange-Traded Funds provides independent, unbiased ratings and analyses of over 800 exchange-traded and closed-end funds, more than any other resource.
As an innovator in exchange-traded funds (ETFs), unit investment trusts (UITs) and closed-end funds (CEFs), Claymore often leads its peers with creative investment strategy solutions.
Claymore currently offers closed-end funds, unit investment trusts and exchange-traded funds.
Exchange-Traded Funds provides in one handy and accessible volume the complete guide to taking advantage of this global market.
com Beta Has Been Launched to Help Investors Be More Informed When Investing and Trading with Exchange-Traded Funds
In addition to centralizing its Exchange-Traded Funds (ETF) into one section to support the growing popularity of these investments, Scottrade customers can customize their ETF criteria and get results in real time using new and fully-customizable ETF screeners.
Nasdaq: TSCM), a leading provider of financial commentary, analysis, research, news and ratings, today announced that it will launch a subscription service designed for investors and traders of exchange-traded funds (ETFs).