Exchange Traded Fund (ETF)

Exchange-traded funds (ETFs) are a type of mutual fund that can provide investors with thorough diversification for relatively small minimum investments. ETFs are a type of closed-end mutual fund, which means they are priced and traded throughout the trading day rather than only at the end of each trading day like traditional open-end mutual funds. 

THE PROs

  • Diversified
  • Low cost
  • Tax efficient
  • Cover a broad range of strategies

THE CONs

  • Complexity in structures makes some ETFs only suitable for short-term investments
  • Use of leverage can make certain ETFs especially volatile

 

KEY QUESTIONS

1. How much are the internal operating expenses for the ETF?

2. What asset class does this ETF track?

3. What strategy does the ETF utilize?

4. Is leverage utilized? If so how and to what degree?

5. Is the investment in this ETF intended to be a long-term structural position or a short-term trading position? Why?

RELEVANT VIDEOS

BlackRock Investment Management explains the growing popularity of Exchange Traded Funds and why you should consider them as part of your investment portfolio.

Investopedia video tackles the benefits of Exchange Traded Funds with a healthy examination.

Watch this brief MoneyWeek Video for a breakdown of ETFs.