ETF
Definition
Noun: An ETF (Exchange-Traded Fund) is a type of investment fund that holds a collection of assets, such as stocks, bonds, or commodities. Its shares are traded on a stock exchange, much like individual stocks, throughout the trading day at market-determined prices.
Usage
ETFs are used as investment vehicles to gain exposure to a broad market index, a specific sector, or a particular asset class. They combine the diversification benefits of a mutual fund with the tradability of a stock. - Many investors choose an ETF that tracks the S&P 500 for low-cost, broad market exposure. - The liquidity of an ETF allows you to buy or sell shares at any time during market hours.
Advanced Usage
- "to trade an ETF": to buy or sell shares of an Exchange-Traded Fund.
- He trades a technology ETF to gain exposure to the sector without picking individual stocks.
- "ETF creation and redemption": refers to the unique process where large financial institutions can exchange the underlying assets of the fund for shares of the ETF, which helps keep its market price aligned with its net asset value.
Variants and Related Words
- Exchange-Traded Fund (ETF): The full term.
- Index ETF: An ETF designed to track a specific market index.
- Actively Managed ETF: An ETF where a portfolio manager makes decisions about asset allocation, aiming to outperform a benchmark index.
- ETF Share: A single unit of ownership in an ETF.
Synonyms
- Traded Fund: A less common general term.
- Exchange-Traded Product (ETP): A broader category that includes ETFs as well as other exchange-traded notes and vehicles.
Related Phrases
- "ETF expense ratio": the annual fee charged by the fund to cover its operating expenses.
- A low ETF expense ratio is a key advantage for long-term investors.
- "ETF premium/discount": when an ETF's market price trades above (premium) or below (discount) the net asset value of its underlying holdings.
Noun
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a mutual fund that is traded on a stock exchange
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