An ETF is a shorthand term for an “Exchange Traded Fund”, which is a type of investment that is based in the stock market. An ETF is an investment plan that can be traded as shares on many of the stock exchanges around the world. Generally, an ETF works to replicate a standard element within the stock exchange, such as the Standard & Poor 500 index. An Exchange Traded Fund might also try to replicate a specific market, such as the technology market or the automotive market. On the other hand, an ETF might try to model itself after a specific commodity such as oil or silver.
The specific makeup of the ETF and the intricacies of the way that one works are defined differently in different parts of the world. There are, however, some universal elements of an ETF. First of all, an Exchange Traded Fund must have a listing on the stock market exchange and it must be able to trade on a ongoing basis. An ETF can also be recognized by the way that its value is assigned. The value of an ETF is directly relates to the value of the assets of which it is comprised.
The qualities of an ETF offer some particular advantages which, to some investors, make them more attractive than traditional open-ended investments. Because an ETF works on a diversified structure, the cost of the fund is low and so is its turnover.
The shares that make up an Exchange Traded Fund are sold freely in the open market. However, ETF shares are generally only purchased by large investors. Although ETF shares are generally held for a long time before investors cash them in for the turnover, some aggressive hedge funds also make use of ETFs in order to increase their worth.
Some of the most popular Exchange Traded Funds are listed below with their index symbol:
- Standard & Poor's 500 Index Depository Receipts (SPY:AMEX)
- Nasdaq-100 Index Tracking Stock (QQQ:AMEX)
- DIAMONDS Trust (DIA:AMEX)
- iShares S & P 500 (IVV:AMEX)
- Standard & Poor's MidCap 400 SPDRs (MDY:AMEX)
- iShares Russell 2000 (IWM:AMEX)
- iShares MSCI EAFE (EFA:AMEX)
- Total Stock Market VIPERs (VTI:AMEX)
- iShares SmallCap 600 (IJR:AMEX)
- Consumer Services Select Sector SPDR (XLV:AMEX)
If you are interested in investing in an ETF, first consider if this is the best type of investment for your financial profile. Consider consulting with a financial services professional. If you decide that investing in an ETF is the right move for you, you may want to consider some of the above funds.