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What is an Exchange Traded Fund?
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What is an Exchange Traded Fund?
Exchange Traded funds are similar to index mutual funds, but they are traded like stock. As the name suggests, Exchange Traded Funds represents a basket of securities that are traded on an exchange.

Types of Exchange Traded Funds

ETF Type ETF Name Tracks
DIAMONDs Diamonds Trust Series I Dow Jones Industrial Average
FITRs Fixed income exchange traded securities Various treasuries (including 1, 2, 5 and 10-year)
HOLDRs Holding company depository receipts Narrow industry groups. (Each initially owns 20 stocks)
iShares iShares Group of ETFs marketed by Barclays Global Investors
QUBEs Nasdaq-100 tracking stock (QQQ) Nasdaq-100 index
Spiders Standard & Poors' Depository Receipts (SPDRs) Track a variety of Standard & Poors' indexes
StreetTracks StreetTracks - State Street Global Advisor ETFs Various indexes, including Dow Jones style indexes and Wilshire indexes
VIPERs Vanguard Index Participation Receipts Several Vanguard index funds


Advantages of Exchange Traded Funds:
  • ETFs can be bought and sold throughout the trading day.
  • Traders have the ability to short or buy ETFs on margin.
  • Low annual expenses rival the cheapest mutual funds.
  • Tax efficiency - ETF tend to beat out mutual funds when it comes to tax efficiency.

Disadvantages of Exchange Traded Funds:
  • Commissions - trading exchange traded funds will cost you.
  • ETFs can be bought through a broker
  • Unlike mutual funds, ETFs don't necessarily trade at the NAV of their underlying holdings, meaning an ETF could potentially trade above or below the value of the underlying portfolios.
  • Slippage - difference between the price at which you want to buy or sell, and the price you actually get.

See also

What are Exchange Traded Funds?

What is an ETF?
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