An ETF or Exchange Traded Fund is a bunch of securities that can trade in the stock market like a single stock. What this means is you get benefits of owning an individual share at the same time, it renders the advantages of an index tracking fund. Same as individual stocks, an ETF can be traded on a stock exchange, based on the US S&P500 index.  You will find lots of recommendations to buy ETFs at Company Invest.  In our opinion they are much, much better (and less expensive) than mutual funds.

An ETF, being a conglomeration of equities, and also called an equity traded fund, trading like a single stock, gives benefits like owning a single individual share at the same time, providing benefits that a collective investment vehicle would give. ETFs will track the performance of a bond, stock, or a commodity index. An example is the Gold ETF. Each Exchange Traded Fund, as with individual stocks, has a SEDOL and ISIN number, a ticker, and can be traded on the stock exchange. Since ETFs are listed securities, market prices rather than the NAV prevail during trading. The market price fluctuates in sync with the NAV, and with the demand and supply of the ETF shares.

The most common way to invest in ETFs is through brokers. It is similar to buying a normal share. ETFs listed on Stock Exchanges are eligible for inclusion in Self Invested Pension Plans and Individual Savings accounts. ETFs also attract dividends.

Same as in a normal fund, dividends are paid for the underlying investments of an ETF. It depends on the individual Exchange Traded Fund, if these dividends will accumulate to the fund or are distributed regularly.

The liquidity of the underlying stocks determines the liquidity of the equity traded fund. If the underlying stock is liquid, it becomes easier for the Market Makers or the Authorized Participants to facilitate trading by creating units. Therefore, even if the ETFs have low trading volumes, they may remain liquid.

Recently, short ETFs have developed, which move against the index, allowing speculation on price falls by private investors. Depending on private investor availability, equity traded funds can also be sold short. Therefore, in anticipation of falling prices, one can sell an ETF that he does not own.  The great thing about short ETFs is you will see Company Invest recommendations for them when signals are bearish on the charts.  That way you can make money when the market goes up AND down.

Since many stocks are making up one ETF, the owner gains diversified market exposure, thus spreading the risks. Mutual Funds can be traded only in day trading, or once a day, whereas equity traded fund are traded real time on stock exchanges. Therefore, ETFs are more liquid than Mutual Funds.

Information on the underlying securities of the equity traded fund is published daily, resulting into a transparency impossible with many other pooled investments. There being no load fee or stamp duty on ETFs, they cost less than similar Mutual Funds, and the cost efficiency of ETFs is higher. ETFs thus represent a low cost investment tool for many investors.  At Company Invest, we clearly like ETFs better.

There are certain risks involved with Exchange Traded Funds, which merit careful consideration before investment. The investor should review all associated documentation published by the equity traded fund provider and learn the risks involved with the investment. There may be tax implications, or exposure to currency risks for international ETFs. Risks after investment may be tracking error and bid offer spreads. Tracking errors include transaction costs and annual fees.

COMPANY INVEST BOTTOM LINE

ETFs are wonderful trading vehicles that offer low fees, less risk than individual stocks, and the opportunity to capitalize on hot sectors.  You can even profit when the market goes down by playing several bearish ETFs.  Watch for many Company Invest ETF picks in coming weeks.