Exchange Traded Funds
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 ï¿½index sharesï¿½) 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
- 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
- Perhaps the greatest benefit of index shares is that
investors now have instant exposure to a diversified portfolio of
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
- The "Diamonds" (DIA), which track the 30 stocks of
the Dow Jones Industrial Average.
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