Exchange-traded funds

(ETF)

An exchange traded fund (ETF) is a type of tracker fund. It differs from a standard tracker fund because it is set up as a listed company, which means investors can buy and sell shares in them on the stock market through most UK stockbrokers. In a traditional tracker fund you can only trade (buy and sell) units with the company that manages the fund.

Serious Information

Trivia

The majority of USA listed ETF's are traded at the AMEX including the SPDR and most Powershares. They can be cheaper than unit trust tracker funds and allow you to gain exposure to specific market sectors. They are easy to trade and to get in and out of.

Exchange Traded Funds (ETFs) give private investors A chance to buy whole indices as easily as buying a share on the London Stock Exchange. This creates real opportunities – widening portfolios and making top down investment cost effective. For brokers, ETFs also present an opportunity to offer attractive new product trades and settles in exactly the same way as shares.

An exchange traded fund (ETF) is an investment fund, designed to track an index. This could be a stockmarket index, such as the FTSE 100, or an index for a particular sector, such as European Technology.

You invest by buying shares in an ETF which are quoted on a stock exchange. Unlike investment trusts, ETFs are 'open ended funds'. This means a fund gets bigger as more people invest and gets smaller as people withdraw money, so the ETF share price reflects the value of investments in the fund.

Return can be in two parts: most ETFs pay out dividends, and you may make a capital gain (or loss) when you selling.

Charges - There is a spread between buy the shares and sell. This is usually very small, for example, just 0.1 or 0.2 per cent for, say, for an ETF tracking the FTSE 100. An annual management charge is deducted from the fund. Typically, this is 0.5 per cent or less. You pay stockbroker's commission when you buy and sell. But, unlike other shares, there is not a stamp duty to pay.

You invest a lump sum by buying shares through a stockbroker or private client investment manager which can also provide you with advice about ETFs.

ETF share prices are listed in the financial pages under London Shares in a section entitled Exchange Traded Funds.

In America the funds are also called SPDRs, pronounced spiders, which stands for S&P Depositary Receipts.

Eligible for inclusion in ISAs but attracting no stamp duty, ETFs have the lowest annual charges of all collective investment schemes. With ETFs you can invest in major global and European sector indices, such as the FTSE100 and the S&P 500.

The legal structure and makeup varies around the world,

Commodity ETFs track a commodity, also known as exchange-traded commodities (ETCs), or a general commodity index.

People have talked about 'actively managed ETF' for a long time, based somewhat on analogy with mutual funds. Others feel that such a thing is contradictory. This is felt to be a strength since no one knows more than anyone else about what the fund holds. If holdings were secret, it would be difficult to buy an ETF, since one would not know what shares to transfer; similarly, if one sells and gets the component shares, the holdings would not be secret. This seems to cause problems for an actively managed fund.

The first ETF was introduced on the Toronto stock exchange in 1989. There are over one hundred ETFs traded on the American Stock Exchange, with more in other countries. ETFs have gainied popularity ever since they were introduced by the American Stock Exchange in the mid 90s, beginning with SPY in 93.

Major Issuers of ETFs
Barclays Global Investors issues iShares.
State Street Global Advisors issues streetTRACKS.
Vanguard Group issues VIPERs.
Rydex Financial issues Rydex ETF's.
Powershares issues Powershares ETF's.

Trivia

In Germany a football soccer website is calling itself a sock exchange

ETF is a common acronym for many groups such as European Training Foundation, European Transport Workers' Federation, UK Grid Engineering Task Force.

Chicago Stock_Exchange

Electronic Communication Network

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