Exchange-Traded Fund (ETF)

An Exchange-Traded Fund (ETF) is a type of investment fund and exchange-traded product that holds a collection of Assets, such as Stocks, Bonds, or Commodities, and is traded on Stock exchanges. ETFs are designed to track the performance of a specific Index, sector, or Asset class, allowing investors to buy and sell Shares throughout the trading day, similar to individual Stocks.

ETFs typically offer diversification, lower Expense Ratios, and tax efficiency compared to traditional mutual funds. They can be bought and sold at market price, which may differ from the net Asset value (NAV) of the underlying Assets.

Examples of ETFs include:

  • SPDR S&P 500 ETF (SPY) – tracks the S&P 500 Index.
  • iShares Russell 2000 ETF (IWM) – focuses on small-cap U.S. Stocks.
  • Vanguard Total Stock Market ETF (VTI) – represents the entire U.S. Stock market.
  • Invesco QQQ Trust (QQQ) – tracks the Nasdaq-100 Index.

Use cases for ETFs include:

  • Investors seeking broad market exposure without picking individual Stocks.
  • Those looking to hedge against market downturns through Inverse ETFs.
  • Investors wanting to gain access to specific sectors, such as technology or healthcare.