Exchange-Traded Funds (ETFs)



Exchange-Traded Fund (ETF) is an important aspect in an investor’s portfolio, as well as the most sophisticated institutional money managers. Certain investors rely on ETFs and consider it as their main focus with their portfolios. Moreover, with the use of a few ETFs, investors are enabled to build a well-diversified portfolio.   

Some investors are using ETFs to complement their existing portfolios and they also rely on it in order to execute sophisticated investment strategies. To maximize the benefits of trading ETFs, it is better to further understand its use and proper application.  

An ETF trades on how a stock is exchange hands. It is alike to a mutual fund as well. An index is tracked along with its performance, which is intended to replicate the ETF. The ETFs structure and mutual funds differs in investing characteristics. The type of management style explains that these differences for ETFs are made to track the index. Therefore, they are considered passively managed, while mutual funds are regarded as actively managed.

On an investor’s different viewpoint, an investment in an index mutual fund and in an ETF that is tracking a similar index is considered as equivalent investments. For instance, the SPDR S&P 500 ETF performance along with a low-cost index fund based on the S&P 500 would both result as nearest to the S&P 500 index regarding its performance.

Despite the fact that index mutual funds are covering common major indexes, ETFs, on the other hand embraces a wider range of indexes, which involve more investing alternatives to the ETF investor compared to the index mutual fund investor. 

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