What is an Exchange Traded Fund
By: John Brand
Exchange traded funds, also known as ETFs, are among the fastest-growing investment products in the financial services industry. Their popularity is due to the unique benefits that the ETF structure offers investors. ETFs are versatile trading and investment vehicles that can be suitable for a number of investment objectives.
An ETF is designed to provide investors with the performance return of a basket of securities, but it also offers the flexibility of trading throughout the day on a national stock exchange, as with an individual stock.
One major benefit of ETFs is transparency. ETF providers disclose each fund’s underlying holdings on a daily basis, making ETFs easy to monitor. ETFs can also offer diversified exposure to virtually any segment of the market, both in the U.S. and internationally, making them attractive to investors who seek market exposure and diversification.
In addition, ETFs can be a low-expense investment option. Because many ETFs use an index as a guide and are not actively managed, ETFs often experience lower transaction costs and total operating expense ratios than those of actively managed investments.
ETFs can be tax-efficient investment vehicles when incorporated into a buy-and-hold strategy. Due to their unique structure, ETFs generally pass on a small amount of capital gains, if any, to investors. However, certain types of ETFs may experience higher turnover and be less tax efficient than broader market ETFs.
Some ETFs are relatively simple, while others may have unusual investment objectives or use complex investment strategies that may be more difficult to understand and fit into an investor’s investment portfolio. It is important to consult with your Financial Advisor regarding any questions you may have.
Exchange Traded Funds (ETFs) are subject to market risk, including the possible loss of principal, and may trade for less than their net asset value. Diversification does not assure a profit or protect against loss.
Investors should consider an ETF’s investment objective, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other important information, is available from your Financial Advisor and should be read carefully before investing.
Article provided by Frank J. “John” Brand III, a Senior Vice President/Investments with Stifel, Nicolaus & Company, Incorporated, member SIPC and New York Stock Exchange, who can be contacted in the Florence office at (843) 665-7599.