exchange-traded fund

(redirected from Exchange-traded funds)
Also found in: Dictionary, Financial.

exchange-traded fund

(ETF), in finance, an investment company that in exchange for the deposit of a portfolio of stocks, bonds, commodities, or other assets issues securities that represent those assets and may be traded like shares of stock. Shares in an ETF may only be issued to the fund's authorized participants, typically large financial institutions, and usually in a large block of 10,000 to 50,000 shares, known as creation units. Shares in an ETF must also be redeemed in creation units. ETF shares may be purchased and traded by most individual investors using a brokerage account.

Most ETFs are similar to index funds (see mutual fundmutual fund,
in finance, investment company or trust that has a very fluid capital stock. It is unique in that at any time it can sell or redeem any of its outstanding shares at net asset value (i.e.
..... Click the link for more information.
) in that they represent a portfolio that is designed to track an index of a financial market, such as the S&P500. ETFs, however, track a greater range of indexes and thus offer more options and more specifically targeted choices for an investor. Unlike shares in a mutual fund, which may be redeemed only at the end of the business day when the net asset value is determined, ETF shares may be bought or sold at any time on an exchange and also may be sold short and purchased on margin, which is useful for traders. In general, compared to mutual funds, ETFs are more useful to the active trader with larger financial resources than to the long-term small investor. The first ETF was created in 1993 in the United States; the number of ETFs and amount of money invested in them grew significantly in the early 21st cent.

References in periodicals archive ?
The actively managed exchange traded funds of the First Trust Exchange-Traded Fund VIII, Nasdaq First Trust CEF Income Opportunity ETF (Nasdaq:FCEF) will pay a monthly distribution of USD0.
The firm estimates a 401(k) plan using index exchange-traded funds can reduce investment expenses by more than 90% compared to a typical 401(k) plan that primarily uses actively managed mutual funds, and by more than 30 % compared to a 401(k) plan that uses index mutual funds.
Some providers already see a market for exchange-traded funds in 401(k) plans.
A new batch of exchange-traded funds are focusing on companies involved with the fight against cancer.
Simply put, exchange-traded funds are open-ended mutual funds that are listed and traded on a stock exchange.