What is ETF, What Are Exchange Traded Funds?

By: EconomyWatch   Date: 31 July 2009

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Exchange traded funds or ETFs are investment schemes run by authorized financial institutions. They hold assets such as bonds, forex, and stocks at almost at the same price as the underlying assets and trade them like stocks through out the day. ETFs work by tracking various indexes like the S&P 500 or other reliable indexes.

 

More about ‘What Is ETF’

Exchange traded funds combine the features of a mutual fund with the features of a closed-end fund. It evaluates the prices of the stock everyday like a unit investment trust and lets the investors to buy or sell the ETFs on the basis of their daily value. They can be traded at prices lower or higher than the actual price just like closed-end funds.

 

What Are The Types of Exchange Traded Funds?
 

There are many types of exchange traded funds such as: 

  • Index ETFs: These ETFs hold the securities and try to gain advantage from the index movement.

  • Commodity ETFs or ETCs (Exchange Traded Commodities): These ETFS invest in commodities like gold or futures.

  • Bond ETFs: These ETFs invest in government bonds.

  • Currency ETFs: These ETFs invest in the forex market.

  • Actively managed ETFs: These are regularly updated ETFs and they display their daily performance on their website.

  • Exchange-traded grantor trusts: These ETFs invest in a basket of stocks of a particular industry.

  • Hedge Fund ETFs: These funds track a hedge fund and replicate its financial activities.

  • Leveraged ETFs: These ETFs utilize debt and other financial derivatives to optimize returns.

 

Companies offering Exchange Traded Funds
 

There are many companies offering ETFs out of which the main payers are:

  • ETF Securities issues ETFs or specialized commodity ETCs.

  • Barclays Global Investors issues iShares.

  • State Street Global Advisors issues SPDRs.

  • Vanguard Group issues Vanguard ETFs, formerly known as VIPERs.

  • Rydex Investments issues RydexShares and others

Exchange traded funds, ever since they were started in 1990, have been a lucrative investment option for many traders looking to hedge their portfolio and diversify.


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