Definition

Noun: An exchange traded fund is a type of pooled investment security, similar to a mutual fund, that holds assets like stocks, bonds, or commodities. Its unique characteristic is that its shares are traded on a public stock exchange throughout the trading day at market-determined prices, just like individual stocks.

Usage and Examples

• Noun:
  • An exchange traded fund that tracks the S&P 500 provides investors with broad market exposure.
  • The low expense ratio is a major advantage of this exchange traded fund.
  • She diversified her portfolio by buying shares in a technology-focused exchange traded fund.

Advanced Usage

• "to track an index": A primary function of many exchange traded funds is to replicate the performance of a specific market index.
  • The exchange traded fund is designed to track the performance of the Nasdaq-100 Index.
• "creation and redemption mechanism": This refers to the process used by authorized participants to create new shares or redeem existing shares of an exchange traded fund, which helps keep its market price aligned with the value of its underlying assets.

Variants and Related Words

• ETF: The standard and most common abbreviation for "exchange traded fund."
  • ETFs have become incredibly popular investment vehicles.
• Index ETF: A type of exchange traded fund specifically designed to follow a particular market index.
• Actively Managed ETF: An exchange traded fund where a portfolio manager makes decisions about the fund's holdings, as opposed to passively tracking an index.

Synonyms

• Traded fund: A less common but direct synonym.
• Listed fund: Highlights the characteristic of being listed on an exchange.

Related Phrases

• Exchange traded product (ETP): A broader category that includes exchange traded funds as well as other traded securities like exchange traded notes (ETNs).
• Basket of securities: Describes the underlying holdings of an exchange traded fund.

Noun

1. a mutual fund that is traded on a stock exchange