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Exchange Traded Funds (ETFs)
Mutual Fund Bullet Tour Page 8Ordinary exchange traded funds (ETFs) are similar to index mutual funds in that they are - investment companies that
- own large portfolios of securities (mainly stocks, bonds and commodities)
- designed to track specific stock, bond or commodity indexes, or industry sectors.
Exotic ETFs have been created to provide investors with a means of hedging or speculating. Some examples are ETFs that are designed to - move inversely with their associated index or sector (shorting)
- move by multiples of the associated index or sector (leverage)
- track or move inversely with a basket of currencies, sometimes by multiples.
Exchange traded funds differ from mutual funds in that - their shares trade throughout each trading day just like stocks and
- there is a fixed number of shares issued for each ETF
- which means the price of ETF shares are subject to the forces of supply and demand*.
- Also, ETFs give investors more control over the timing of capital gains.
* Intensive trading by knowledgeable professional traders tends to keep ETF prices very near their NAV.Relevant Content:
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