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Exchange Traded Funds (ETFs)

Exchange Traded Funds (ETFs) are index-based products. Each ETF holds a portfolio of securities that approximates the price and yield performance of its underlying benchmark index.

Basically, ETFs (also called �index shares�) are index funds that are listed on an exchange and can be traded on an intraday basis. Investors can buy or sell ETF shares as a single security. Exchange traded funds combine the flexibility, ease, and liquidity of trading stocks with the benefits of investing in traditional index funds.

With index shares, you have a wide range of investment options:

• Access to an entire portfolio of stocks in a single transaction;
   
• Ability to buy on margin;
   
• Ability to sell ETFs short even on a down tick (i.e., when the last sale price is lower than the preceding sale price);
   
• May be purchased and sold throughout the trading day (unlike mutual funds, which are priced daily at 4 p.m.);
   
• Reduced costs for investor affordability;
   
• May purchase as few as one share;
   
• No high management and sponsor fees;
   
• Opportunity for dividend income;
   
• Ease and convenience of trading;
   
• Tax efficiencies;
  
   
• Instant exposure to a diversified portfolio of stocks;
   
• Perhaps the greatest benefit of index shares is that investors now have instant exposure to a diversified portfolio of stocks.

In recent years, these unique features and benefits have helped ETFs explode in popularity. They have become one of the most flexible, multi-purpose investment vehicle available, representing an entirely new investment category.

The following are the most active (liquid) ETFs:

• The Nasdaq-100 Index Tracking Stock (QQQQ), commonly known as the "qubes" or "cubes". The cubes track the top 100 non-financial stocks of the NASDAQ;
   
• The Standard & Poor's Depositary Receipts (SPDR), commonly called "spiders," which track the stocks of the S&P 500;
   
• The "Diamonds" (DIA), which track the 30 stocks of the Dow Jones Industrial Average.

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