An ETF (Exchange Traded Fund) is an index-tracking investment managed by an investment management company. ETFs are bought and sold in exactly the same way as regular stocks, and can be traded at any time of the trading day on the exchange.
ETFs have a fairly short history – in 1993 the US Stock Exchange launched the S&P Depositary Receipts Series 1 – it’s a bit of a mouthful, and the new investment vehicle quickly gained the nickname ‘Spiders’. These Depositary Receipts tracked the S&P 500.
Nowadays, there’s are huge range of ETFs to choose from. Long established ETFs include
Today, as well as equity ETFS, bond ETFs are available. These track a wide selection of fixed-income bonds, from Treasuries to Mortgage Backed Securites to junk bonds.
As an investment, the greatest pro of ETFs is that charges are typically low, as running an index-tracking fund should be simple since no investment research/stock-picking expertise is required. Annual fees are typically in the region of 0.3-0.4% for an ETF, 0.6-0.8% for an index-tracking Mutual Fund, up to around 1.5% for an actively managed Mutual Fund. But it’s debatable whether many ‘active-management’ outfits add value in the long term.
ETFs can be bought and sold through a stock broker just like any other share, with regular dealing costs.
The trading price of an ETF should be approximately the same as the value of the underlying securities plus any undistributed income.
Best Finance’s ratings for ETFs: Investment Overhead Costs 4 stars out of 5. Flexibility 4 stars out of 5.
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August 10, 2008 at 11:12 pm |
This a great guide to ETF Funds!
I definitely agree with you when you say:
“As an investment, the greatest pro of ETFs is that charges are typically low, as running an index-tracking fund should be simple since no investment research/stock-picking expertise is required. Annual fees are typically in the region of 0.3-0.4% for an ETF, 0.6-0.8% for an index-tracking Mutual Fund, up to around 1.5% for an actively managed Mutual Fund. But it’s debatable whether many ‘active-management’ outfits add value in the long term.”
I also have an overview of ETF Funds that I think would be valuable to someone that would like to get a better understanding of the ETF Market.
You can find it at http://financialplanneralliance.com/2008/06/etf-funds.html
If you would like to trade articles on etf funds please check out what I have to offer so far and maybe we could trade ‘guest articles’ on each other’s blogs. Thanks again.