What Is An ETF?
An Exchange-Traded Fund (ETF) is an investment fund that is traded on a stock exchange. The ETF holds assets such as stocks, commodities, or bonds and trades at the net asset value of the underlying assets. Most ETF’s track an index, i.e. the FTSE 100. ETF’s achieve this by holding either the contents of the index or a representative sample of the index in their portfolio, in an attempt to replicate the performance of the index. Some ETF’s track commodity indexes, these are sometimes referred to as Exchange-Traded Commodities (ETCs). Likewise some invest solely in bonds and are known as bond ETFs.
ETFs are liquid investments allowing investors to be able to easily sell their shares during normal market hours. The dividends collected from the ETF’s portfolio (in the case of stock based ETFs) are usually distributed to the investors at regular intervals and ETF management fees are usually deducted from the dividends.
ETFs can be traded through most stock brokers for roughly the same cost as trading directly in the underlying assets.
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