Investors > ETFs > ETF Basics

Exchange Traded Funds (ETFs), also called Index Shares, are investments that represent a diversified group of companies (just like mutual funds) but trade like stocks. You can think of ETFs as a cross between mutual funds and stocks. They’ve been around since about 1993, which is a short time for an investment product. There are over 120 stock-based ETFs in the market and just a handful of bond-based ETFs. The table below gives a list of the websites for ETF educational information.

WEBSITES FOR ETF INFORMATION
American Stock Exchange http://www.amex.com
Barklays Global Investors http://www.ishares.com
Nuveen Investments http://www.etfconnect.com
NASDAQ http://www.nasdaq.com
Morningstar http://www.morningstar.com
State Street Global Advisors http://www.streettracks.com

 

ETF Advantages
One of the great things about ETFs is that the small investor doesn’t need thousands of dollars to buy into them unlike with mutual funds. The table below shows three of the most popular ETFs and their prices per share.

HEAVILY TRADED ETFs*
ETF Symbol Price Per Share ($)*
Nasdaq-100 Index Tracking Stock
QQQ
34.15
SPDRS
SPY
103.35
DIAMONDS
DIA
95.87
*As Of 9/3/03

Another ETF advantage is that like stocks, the price of ETFs change continuously during the day. This is in contrast to mutual funds where the NAV of funds is typically set after 4 p.m. on th eday you want to buy or sell the mutual fund.

Like mutual funds ETFs charge investors some expenses but these expenses are much lower than mutual fund expenses. For example, the most cost-effective mutual funds (from an expense ratio point of view) charge between .18% and .40% per year. ETFs, however, charge between .09% and .25% per year.

ETF Disadvantage
The only real disadvatage of ETFs is the same disadvantages you'll find with stocks and mutual funds: you will pay brokerage fees for buying the stock plus whatever fees are charged for falling below the account's minimum balances or for trading infrequently.

 

 

2003-2008