What is an example of an exchange-traded fund?
Some of the common ETF types include: Index ETFs: These are meant to follow specific U.S. indexes. One of the most popular is the SPDR S&P 500 ETF Trust (SPY), which tracks the S&P 500 index. Foreign market/country ETFs: Overseas market exposure is easy with these ETFs.
Industry/Sector ETFs
Industry or sector ETFs are funds that focus on a specific sector or industry. For example, an energy sector ETF will include companies operating in that sector. The idea behind industry ETFs is to gain exposure to that industry by tracking the performance of companies operating in that sector.
ETFs or "exchange-traded funds" are exactly as the name implies: funds that trade on exchanges, generally tracking a specific index. When you invest in an ETF, you get a bundle of assets you can buy and sell during market hours—potentially lowering your risk and exposure, while helping to diversify your portfolio.
With a mutual fund, you buy and sell based on dollars, not market price or shares. And you can specify any dollar amount you want—down to the penny or as a nice round figure, like $3,000. With an ETF, you buy and sell based on market price—and you can only trade full shares.
| ETF | Assets under management | Expense ratio |
|---|---|---|
| Invesco QQQ Trust (ticker: QQQ) | $244 billion | 0.2% |
| VanEck Semiconductor ETF (SMH) | $14 billion | 0.35% |
| Consumer Discretionary Select Sector SPDR Fund (XLY) | $19 billion | 0.09% |
| Global X Uranium ETF (URA) | $3 billion | 0.69% |
The main difference is that ETFs can be traded throughout the day, just like an ordinary stock. Mutual funds, on the other hand, can only be sold once a day, after the market closes.
| Rank | Symbol | Fund Name |
|---|---|---|
| 1 | SPY | SPDR S&P 500 ETF Trust |
| 2 | IVV | iShares Core S&P 500 ETF |
| 3 | VOO | Vanguard S&P 500 ETF |
| 4 | VTI | Vanguard Total Stock Market ETF |
ETFs are bought and sold just like stocks (through a brokerage house, either by phone or online), and their price can change from second to second. Mutual fund orders can be made during the day, but the actual trade doesn't occur until after the markets close.
- Higher Management Fees. Not all ETFs are passive. ...
- Less Control Over Investment Choices. When you invest in an ETF, you're buying a basket of stocks intended to align with the fund's objectives. ...
- May Not Beat Individual Stock Returns.
Key Takeaways. ETFs are considered to be low-risk investments because they are low-cost and hold a basket of stocks or other securities, increasing diversification. For most individual investors, ETFs represent an ideal type of asset with which to build a diversified portfolio.
What is a stock vs exchange-traded fund?
The biggest difference between ETFs and stocks is that a stock represents ownership in a single company, whereas an exchange-traded fund is a collection of investable assets and securities, including stocks and bonds. Both can be bought and sold during the day when the stock market is open.
ETFs typically have lower expense ratios compared to mutual funds because they're more passively managed. They disclose their holdings daily, allowing investors to see the underlying assets and make informed investment decisions.
ETF issuers collect any dividends paid by the companies whose stocks are held in the fund, and they then pay those dividends to their shareholders. They may pay the money directly to the shareholders, or reinvest it in the fund.
- Vanguard Real Estate ETF (VNQ 0.15%) ...
- iShares Core S&P Total U.S. Stock Market ETF (ITOT 0.62%) ...
- Consumer Staples Select Sector SPDR Fund (XLP -0.92%) ...
- iShares 0-3 Month Treasury Bond ETF (SGOV 0.03%) ...
- Vanguard Utilities ETF (VPU 0.44%) ...
- iShares U.S. Healthcare Providers ETF (IHF 0.54%) ...
- Schwab U.S. TIPS ETF (SCHP -0.14%)
| Symbol | Name | AUM |
|---|---|---|
| SPY | SPDR S&P 500 ETF Trust | $487,673,000.00 |
| IVV | iShares Core S&P 500 ETF | $433,066,000.00 |
| VOO | Vanguard S&P 500 ETF | $403,343,000.00 |
| VTI | Vanguard Total Stock Market ETF | $367,564,000.00 |
| Symbol | Name | Dividend Yield |
|---|---|---|
| NIKL | Sprott Nickel Miners ETF | 22.01% |
| SQY | YieldMax SQ Option Income Strategy ETF | 21.85% |
| AAPB | GraniteShares 2x Long AAPL Daily ETF | 19.90% |
| JEPY | Defiance S&P 500 Enhanced Options Income ETF | 19.87% |
Key Takeaways. ETFs can be safe investments if used correctly, offering diversification and flexibility. Indexed ETFs, tracking specific indexes like the S&P 500, are generally safe and tend to gain value over time. Leveraged ETFs can be used to amplify returns, but they can be riskier due to increased volatility.
Exchange-traded funds work like this: The fund provider owns the underlying assets, designs a fund to track their performance and then sells shares in that fund to investors. Shareholders own a portion of an ETF, but they don't own the underlying assets in the fund.
SPY was launched in January 1993 and was the very first ETF listed in the U.S.10. Index investing pioneer Vanguard's S&P 500 Index Fund was the first index mutual fund for individual investors.
As of December 2023, State Street's SPDR S&P 500 ETF Trust was the highest valued exchange-traded fund (ETF) globally, with a market capitalization of about 417.37 billion U.S. dollars. Market capitalization of an ETF is calculated by multiplying the number of shares issued in the fund by the share price.
What is better than ETF?
Mutual funds and ETFs may hold stocks, bonds, or commodities. Both can track indexes, but ETFs tend to be more cost-effective and liquid since they trade on exchanges like shares of stock. Mutual funds can offer active management and greater regulatory oversight at a higher cost and only allow transactions once daily.
The Fidelity Blue-Chip Growth ETF FBCG has jumped 58.7% in 2023 to become the best-performing U.S. fund, excluding ETNs and leveraged products, according to FactSet data. The WisdomTree U.S. Quality Growth Fund QGRW is up 56.2% this year, while the Invesco QQQ Trust Series I QQQ has risen 55.6% in 2023.
- Interest distributions if the ETF invests in bonds.
- Dividend. + read full definition distributions if the ETF invests in stocks that pay dividends.
- Capital gains distributions if the ETF sells an investment. + read full definition for more than it paid.
Experts agree that for most personal investors, a portfolio comprising 5 to 10 ETFs is perfect in terms of diversification.
Redeeming an ETF
When investors want to sell ETF holdings, they can: Sell the shares on the open market. Gather enough shares of the ETF to form a creation unit, then exchange the creation unit for the underlying securities.
