ETFs General Questions
What are exchange-traded funds (ETFs)?
Exchange-traded funds (ETFs) are an emerging class of low-cost index funds that trade like stocks. In the U.S., ETFs can be found on the American Stock Exchange, the New York Stock Exchange, or the NASDAQ.
Return To TopWhat’s the history behind ETFs?
The history of exchange-traded funds dates back to 1993, when American Stock Exchange launched the “Spiders”, also known as the S&P Depositary Receipts, Trust Series 1. The underlying index tracks the S&P 500. Other well-known ETFs followed, with the Diamonds (tracks the Dow Jones Industrial Average) being introduced in 1998 and the Cubes (tracks the NASDAQ 100) launching in 1999.
Return To TopHow do I buy or sell ETFs?
ETFs are listed and traded with ticker symbols, the same way as individual stocks. They can be bought or sold through a full service or discount broker/dealer. A brokerage commission to buy or sell will usually apply.
Return To TopWhat’s the typical cost of an ETF?
There are a number of factors that affect the cost of an ETF, including the expense ratio and the brokerage commission to acquire the fund. Generally, the expense ratios of ETFs are consistently lower versus actively managed mutual funds. Also, expense ratios will vary among ETF companies, but this information can be obtained from the fund prospectus.
Return To TopHow liquid are ETFs?
The liquidity of an ETF is mainly affected by the liquidity of the underlying stocks or bonds in its index - not on the trading volume of the fund itself. The reason is because it’s less complicated for authorized participants or market makers to assemble creation units for liquid stocks or bonds. (Creations units are baskets of underlying stocks or bonds within an ETF that can be exchanged for ETF shares.) It’s possible for ETFs with low trading volume to still be liquid.
Return To TopDo ETFs pay dividends?
The dividends received from underlying stocks in an ETF’s portfolio are distributed to fund shareholders. The frequency of dividend payments can be quarterly or monthly, depending on the fund.
Return To TopWhat indexes do ETFs track?
Exchange traded funds track the performance of a variety of broad based and narrow stock, bond, and commodity indexes.
Return To TopAre exchange-traded funds listed in the newspaper?
Some papers list ETFs near the stock tables or under the stock exchange where the fund is listed. This is the general approach most newspapers take. The Wall Street Journal has a section listed under “Exchange Traded Portfolios”.
Return To TopWhat market risks are associated with ETFs?
Equity-based exchange traded funds have a similar risk profile to those of stocks, while fixed income-based ETFs have a risk profile that matches bonds. Performance returns will fluctuate and are subject to market volatility. ETF shares may be valued more or valued less than their original cost at the time of sale. ETFs are not FDIC insured, past performance is not a guarantee of future results, and other pertinent risk information can be located in the fund prospectus.
Return To TopWhat’s the difference between the market price and NAV in an ETF?
Net Asset Value (NAV) refers to a fund’s total assets minus its liabilities, whereas market price refers to the quoted price that an ETF is trading at on an exchange. At times, the NAV and market price of ETFs will diverge.
Return To TopETFs General Questions
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