Exchange Traded Funds

Exchange Traded Funds

See Also:
Currency Exchange Rates
Currency Swap
Transaction Exposure
Hedging Risk
Hedge Funds

Exchange Traded Funds (EFTs)

What are exchange traded funds? What are EFTs? Exchange traded funds, or ETFs, are securities that resemble mutual funds but trade like stocks. Essentially, an exchange-traded fund is a portfolio of securities that trades like a single security. ETFs have been trading in the U.S. since 1993.
ETF securities often track a major market index, such as the Dow Jones Industrial Average or the S&P 500, or an index that represents a certain sector or industry. For example, investors can buy ETFs that represent basic materials companies, utility companies, or financial service companies. ETFs also exist that represent commodities, such as oil, gold, or other assets. By design, the price movements of the exchange-traded funds fluctuate with the price movements of the underlying asset or index.
The creation unit feature, which allows large institutional investors to swap shares of the exchange traded fund for blocks of the underlying assets, acts as an arbitrage mechanism that serves to keep the value of the exchange traded fund equal to the value of the underlying securities.

ETF Investing

Exchange traded funds offer the diversification of a broad basket of securities, such as that of a mutual fund or index fund, and the flexibility and liquidity of a share of stock. ETF investing also has several other benefits when compared to mutual funds or even individual shares of stock, including low expenses and tax benefits.
Unlike mutual funds, which are priced at the end of the day according to net asset value, the price of an exchange-traded fund fluctuates throughout the day as traders buy and sell shares. The fees and expenses associated with an exchange traded fund are less than those associated with a mutual fund, and ETFs are much more liquid than mutual funds. With an ETF, traders can buy and sell shares of the fund throughout the trading day.
Like shares of stock, exchange traded funds can be sold short, traded on margin, and bought in quantities as little as a single share. The dealer or broker commission paid on an exchange-traded fund purchase is similar to that of a common stock purchase. And for tax purposes, an ETF investor incurs capital gains taxes only when he sells his shares. Or they incur capital gains taxes when the ETF changes to better reflect the underlying index or assets.

ETF Connect

ETF connect is a good website for ETF information: www.etfconnect.com.
exchange traded funds

ARTICLES YOU MIGHT LIKE

The Struggles of Private Company Accounting

Hiring the right accountant  When I meet a business owner operating at a successful $10 million in revenue, they often mention, “My CPA”… I immediately know that CEO/Entrepreneur is referring to their Tax CPA.  That is because one thing that all Entrepreneurs have in common is that they must file a tax return.  So, from

Read More »

IN CRISIS? GET A STRATEGIC CFO! – CEO Blindspots Podcast

Friend of the firm, Birgit Kamps, recently had Strategic CFO President, Dan Corredor, as a guest on her podcast, CEO Blindspots. CEO BLINDSPOTS HOST: Birgit Kamps. She was speaking five languages by the age of 10, and lived in five countries with her Dutch parents prior to becoming an American citizen. Birgit’s professional experience includes starting

Read More »

SHRM calls ICHRA the 401K for Group Health Benefits

Fed-up with group health insurance? ICHRA is the new way to offer great health benefits and avoid ACA penalties, SHRM calls it the 401K for group health benefits.  In 2020 the Department of Labor, HHS and IRS changed the rules for employer health benefits. They changed the Affordable Care Act mandates and penalties for every

Read More »

JOIN OUR NEXT SERIES

Financial Leadership Workshop

MARCH 28TH-31ST 2022

SHARE THIS ARTICLE

JOIN THE NEXT STRATEGIC CFO™ SERIES

Strategic CFO™ Financial Leadership Workshop
The Art of the CFO®

Days
Hours
Min
Sec

September 12-15th 2022