Exchange-traded fund

From Wikipedia, the free encyclopedia

This article needs additional citations for verification.
Please help improve this article by adding reliable references. Unsourced material may
be challenged and removed. (January 2010)
An exchange-traded fund (ETF), also known as an exchange-traded product (ETP), is an investment fund
traded on stock exchanges, much like stocks.[1] An ETF holds assets such as stocks, commodities, or bonds
and trades at approximately the same price as the net asset value of its underlying assets over the course of
the trading day. Most ETFs track an index, such as the S&P 500 or MSCI EAFE. ETFs may be attractive as
investments because of their low costs, tax efficiency, and stock-like features. [2][3]
Only so-called authorized participants (typically, large institutional investors) actually buy or sell shares of an
ETF directly from/to the fund manager, and then only in creation units, large blocks of tens of thousands of ETF
shares, which are usually exchanged in-kind with baskets of the underlying securities. Authorized participants
may wish to invest in the ETF shares long-term, but usually act as market makers on the open market, using
their ability to exchange creation units with their underlying securities to provide liquidity of the ETF shares and
help ensure that their intraday market price approximates to the net asset value of the underlying assets.
[4]
 Other investors, such as individuals using a retail broker, trade ETF shares on this secondary market.
An ETF combines the valuation feature of a mutual fund or unit investment trust, which can be bought or sold
at the end of each trading day for its net asset value, with the tradability feature of a closed-end fund, which
trades throughout the trading day at prices that may be more or less than its net asset value. Closed-end funds
are not considered to be "ETFs", even though they are funds and are traded on an exchange. ETFs have been
available in the US since 1993 and in Europe since 1999. In 1993, the first country specific ETFs were a
collaboration between MSCI, BGI and a small independent third party Distribution firm called Funds Distributor,
Inc. The product eventually evolved into the iShares brand widely known around the globe. ETFs traditionally
have been index funds, but in 2008 the U.S. Securities and Exchange Commission began to authorize the
creation of actively managed ETFs.[4]
Contents
 [hide]
1 Structure
2 History
3 Investment uses
4 Types of ETFs
o 4.1 Index ETFs
o 4.2 Commodity ETFs or ETCs
o 4.3 Bond ETFs
o 4.4 Currency ETFs or ETCs
o 4.5 Actively managed ETFs
o 4.6 Exchange-traded grantor trusts
o 4.7 Leveraged ETFs
5 ETFs compared to mutual funds
o 5.1 Costs
o 5.2 Taxation
o 5.3 Trading
6 Criticism
7 Issuers of ETFs
8 See also
9 References
10 Further reading
11 External links
[edit]Structure
ETFs offer public investors an undivided interest in a pool of securities and other assets and thus are similar in
many ways to traditional mutual funds, except that shares in an ETF can be bought and sold throughout the
day like stocks on a securities exchange through a broker-dealer. Unlike traditional mutual funds, ETFs do not
sell or redeem their individual shares at net asset value, or NAV. Instead, financial institutions purchase and
redeem ETF shares directly from the ETF, but only in large blocks, varying in size by ETF from 25,000 to
200,000 shares, called "creation units". Purchases and redemptions of the creation units generally are in kind,
with the institutional investor contributing or receiving a basket of securities of the same type and proportion
held by the ETF, although some ETFs may require or permit a purchasing or redeeming shareholder to
substitute cash for some or all of the securities in the basket of assets. [4]
The ability to purchase and redeem creation units gives ETFs an arbitrage mechanism intended to minimize
the potential deviation between the market price and the net asset value of ETF shares. Existing ETFs have
transparent portfolios, so institutional investors will know exactly what portfolio assets they must assemble if
they wish to purchase a creation unit, and the exchange disseminates the updated net asset value of the
shares throughout the trading day, typically at 15-second intervals. [4]
If there is strong investor demand for an ETF, its share price will (temporarily) rise above its net asset value per
share, giving arbitrageurs an incentive to purchase additional creation units from the ETF and sell the
component ETF shares in the open market. The additional supply of ETF shares increases the ETF's market
capitalization and reduces the market price per share, generally eliminating the premium over net asset value.
A similar process applies when there is weak demand for an ETF and its shares trade at a discount from net
asset value.
In the United States, most ETFs are structured as open-end management investment companies (the same
structure used by mutual funds and money market funds), although a few ETFs, including some of the largest
ones, are structured as unit investment trusts. ETFs structured as open-end funds have greater flexibility in
constructing a portfolio and are not prohibited from participating in securities lending programs or from using
futures and options in achieving their investment objectives. [5]
Under existing regulations, a new ETF must receive an order from the Securities and Exchange Commission,
or SEC, giving it relief from provisions of the Investment Company Act of 1940 that would not otherwise allow
the ETF structure. In 2008, however, the SEC proposed rules that would allow the creation of ETFs without the
need for exemptive orders. Under the SEC proposal, an ETF would be defined as a registered open-end
management investment company that:

 Issues (or redeems) creation units in exchange for the deposit (or delivery) of basket assets the current
value of which is disseminated on a per share basis by a national securities exchange at regular intervals
during the trading day;

 Identifies itself as an ETF in any sales literature;

 Issues shares that are approved for listing and trading on a securities exchange;

 Discloses each business day on its publicly available web site the prior business day's net asset value and
closing market price of the fund's shares, and the premium or discount of the closing market price against
the net asset value of the fund's shares as a percentage of net asset value; and
 Either is an index fund, or discloses each business day on its publicly available web site the identities and
weighting of the component securities and other assets held by the fund. [4]
The SEC rule proposal would allow ETFs either to be index funds or to be fully transparent actively managed
funds. Historically, all ETFs in the United States have been index funds. In 2008, however, the SEC began
issuing exemptive orders to fully transparent actively managed ETFs. The first such order was to PowerShares
Actively Managed Exchange-Traded Fund Trust, [6] and the first actively managed ETF in the United States was
the Bear Stearns Current Yield Fund, a short-term income fund that began trading on the American Stock
Exchangeunder the symbol YYY on 25 March 2008.[7] The SEC rule proposal indicates that the SEC may still
consider future applications for exemptive orders for actively managed ETFs that do not satisfy the proposed
rule's transparency requirements.[4]
Some ETFs invest primarily in commodities or commodity-based instruments, such as crude oil and precious
metals. Although these commodity ETFs are similar in practice to ETFs that invest in securities, they are not
"investment companies" under the Investment Company Act of 1940. [4]
Publicly traded grantor trusts, such as Merrill Lynch's HOLDRS securities, are sometimes considered to be
ETFs, although they lack many of the characteristics of other ETFs. Investors in a grantor trust have a direct
interest in the underlying basket of securities, which does not change except to reflect corporate actions such
as stock splits and mergers. Funds of this type are not "investment companies" under the Investment Company
Act of 1940.[8]
As of 2009, there were approximately 1,500 exchange-traded funds traded on US exchanges. [9] This count
uses the wider definition of ETF, including HOLDRS and closed-end funds.
[edit]History
ETFs had their genesis in 1989 with Index Participation Shares, an S&P 500 proxy that traded on the American
Stock Exchange and the Philadelphia Stock Exchange. This product, however, was short-lived after a lawsuit
by the Chicago Mercantile Exchange was successful in stopping sales in the United States. [10]
A similar product, Toronto Index Participation Shares, started trading on the Toronto Stock Exchange in 1990.
The shares, which tracked the TSE 35 and later the TSE 100 stocks, proved to be popular. The popularity of
these products led the American Stock Exchange to try to develop something that would satisfy SEC regulation
in the United States.[10]
Nathan Most and Steven Bloom, executives with the exchange, designed and developed Standard & Poor's
Depositary Receipts (NYSE: SPY), which were introduced in January 1993.[11][12] Known as SPDRs or
"Spiders", the fund became the largest ETF in the world. In May 1995 they introduced the MidCap SPDRs
(NYSE: MDY).
Barclays Global Investors, a subsidiary of Barclays plc, entered the fray in 1996 with World Equity Benchmark
Shares, or WEBS, subsequently renamed iShares MSCI Index Fund Shares. WEBS tracked MSCI country
indexes, originally 17, of the funds' index provider, Morgan Stanley. WEBS were particularly innovative
because they gave casual investors easy access to foreign markets. While SPDRs were organized as unit
investment trusts, WEBS were set up as a mutual fund, the first of their kind. [13][14]
In 1998, State Street Global Advisors introduced the "Sector Spiders", which follow the nine sectors of the S&P
500.[15] Also in 1998, the "Dow Diamonds" (NYSE: DIA) were introduced, tracking the famous Dow Jones
Industrials Average. In 1999, the influential "cubes" (NASDAQ: QQQQ) were launched attempting to replicate
the movement of theNASDAQ-100. Launched at the height of the dotcom market, the QQQ was one of the
fastest growing funds ever, amassing over $10B in assets in its first year.
In 2000 Barclays Global Investors put a significant effort behind the ETF marketplace, with a strong emphasis
on education and distribution to reach long-term investors. The iShares line was launched in early 2000. Within
5 years iShares had surpassed the assets of any other ETF competitor in the U.S. and Europe, and by the
time Barclays Global Investors was sold toBlackRock in 2009, iShares had become the largest ETF family in
the world, and the fourth largest fund family in the U.S. overall (behind Fidelity, Vanguard, and American Funds
in overall assets). Vanguard itself—long opposed to ETFs—entered the market in 2005.
Since then ETFs have proliferated, tailored to an increasingly specific array of regions, sectors, commodities,
bonds, futures, and other asset classes. As of May 2008, there were 680 ETFs in the U.S., with $610 billion in
assets, an increase of $125 billion over the previous twelve months. [16]
[edit]Investment uses
ETFs generally provide the easy diversification, low expense ratios, and tax efficiency of index funds, while still
maintaining all the features of ordinary stock, such as limit orders, short selling, and options. Because ETFs
can be economically acquired, held, and disposed of, some investors invest in ETF shares as a long-term
investment for asset allocation purposes, while other investors trade ETF shares frequently to implement
market timing investment strategies.[5] Among the advantages of ETFs are the following: [8][17]
 Lower costs - ETFs generally have lower costs than other investment products because most ETFs are not
actively managed and because ETFs are insulated from the costs of having to buy and sell securities to
accommodate shareholder purchases and redemptions. ETFs typically have lower marketing, distribution
and accounting expenses, and most ETFs do not have 12b-1 fees.
 Buying and selling flexibility - ETFs can be bought and sold at current market prices at any time during the
trading day, unlike mutual funds and unit investment trusts, which can only be traded at the end of the
trading day. As publicly traded securities, their shares can be purchased on margin and sold short,
enabling the use of hedging strategies, and traded using stop orders and limit orders, which allow investors
to specify the price points at which they are willing to trade.

 Tax efficiency - ETFs generally generate relatively low capital gains, because they typically have low
turnover of their portfolio securities. While this is an advantage they share with other index funds, their tax
efficiency is further enhanced because they do not have to sell securities to meet investor redemptions.

 Market exposure and diversification - ETFs provide an economical way to rebalance portfolio allocations
 and to "equitize" cash by investing it quickly. An index ETF inherently provides diversification across an
entire index. ETFs offer exposure to a diverse variety of markets, including broad-based indexes, broad-
based international and country-specific indexes, industry sector-specific indexes, bond indexes, and
commodities.

 Transparency - ETFs, whether index funds or actively managed, have transparent portfolios and are priced
at frequent intervals throughout the trading day.

Some of these advantages derive from the status of most ETFs as index funds.

[edit]Types of ETFs
[edit]Index ETFs
Most ETFs are index funds that hold securities and attempt to replicate the performance of a stock market
index. An index fund seeks to track the performance of an index by holding in its portfolio either the contents of
the index or a representative sample of the securities in the index. [5] Some index ETFs, known as leveraged
ETFs or inverse ETFs, use investments inderivatives to seek a return that corresponds to a multiple of, or the
inverse (opposite) of, the daily performance of the index. [18] As of February 2008, index ETFs in the United
States included 415 domestic equity ETFs, with assets of $350 billion; 160 global/international equity ETFs,
with assets of $169 billion; and 53 bond ETFs, with assets of $40 billion. [19]
Some index ETFs invest 100% of their assets proportionately in the securities underlying an index, a manner of
investing called "replication". Other index ETFs use "representative sampling", investing 80% to 95% of their
assets in the securities of an underlying index and investing the remaining 5% to 20% of their assets in other
holdings, such as futures, option and swap contracts, and securities not in the underlying index, that the fund's
adviser believes will help the ETF to achieve its investment objective. For index ETFs that invest in indexes
with thousands of underlying securities, some index ETFs employ "aggressive sampling" and invest in only a
tiny percentage of the underlying securities.[20][21]
[edit]Commodity ETFs or ETCs
Commodity ETFs invest in commodities, such as precious metals and futures. Among the first commodity ETFs
were gold exchange-traded funds, which have been offered in a number of countries. The idea of a Gold ETF
was first officially conceptualised by Benchmark Asset Management Company Private Ltd in India when they
filed a proposal with the SEBI in May 2002.[22] The first gold exchange-traded fund was Gold Bullion
Securities launched on the ASX in 2003, and the first silver exchange-traded fund was iShares Silver Trust
launched on the NYSE in 2006.
However, generally commodity ETFs are index funds tracking non-security indexes. Because they do not invest
in securities, commodity ETFs are not regulated as investment companies under the Investment Company Act
of 1940 in the United States, although their public offering is subject to SEC review and they need an SEC no-
action letter under theSecurities Exchange Act of 1934. They may, however, be subject to regulation by
the Commodity Futures Trading Commission.[23][24]
Exchange-traded commodities (ETCs) are investment vehicles (asset backed bonds, fully collateralised) that
track the performance of an underlying commodity index including total return indices based on a single
commodity. Similar to ETFs and traded and settled exactly like normal shares on their own dedicated segment,
ETCs have market maker support with guaranteed liquidity, enabling investors to gain exposure to
commodities, on-Exchange, during market hours.
The earliest commodity ETFs (e.g. GLD and SLV) actually owned the physical commodity (e.g. gold and silver
bars). Similar to these are NYSE: PALL (palladium) and NYSE: PPLT(platinum). However, most ETCs
implement a futures trading strategy, which may produce quite different results from owning the commodity.
Commodity ETFs trade just like shares, are simple and efficient and provide exposure to an ever-increasing
range of commodities and commodity indices, including energy, metals, softs and agriculture. However, it is
important for an investor to realize that there are often other factors that affect the price of a commodity ETF
that might not be immediately apparent. For example, buyers of an oil ETF such as USO might think that as
long as oil goes up, they will profit roughly linearly. What isn't clear to the novice investor is the method by
which these funds gain exposure to their underlying commodities. In the case of many commodity funds, they
simply roll so-called front-month futures contracts from month to month. This does give exposure to the
commodity, but subjects the investor to risks involved in different prices along the term structure, such as a
high cost to roll.[25][26]
[edit]Bond ETFs
Exchange-traded funds that invest in bonds are known as bond ETFs. They thrive during economic recessions
because investors pull their money out of the stock market and into bonds (for example, government treasury
bonds or those issues by companies regarded as financially stable). Because of this cause and effect
relationship, the performance of bond ETFs may be indicative of broader economic conditions. [27] There are
several advantages to bond ETFs such as the reasonable trading commissions, but this benefit can be
negatively offset by fees if bought and sold through a third party. [28]
[edit]Currency ETFs or ETCs
In 2005, Rydex Investments launched the first ever currency ETF called the Euro Currency Trust (NYSE: FXE)
in New York. Since then Rydex has launched a series of funds tracking all major currencies under their brand
CurrencyShares. In 2007 Deutsche Bank's db x-trackers launched EONIA Total Return Index ETF in Frankfurt
tracking the euro, and later in 2008 the Sterling Money Market ETF (LSE: XGBP) and US Dollar Money Market
ETF (LSE: XUSD) in London. In 2009, ETF Securities launched the world's largest FX platform tracking the
MSFXSM Index covering 18 long or short USD ETC vs. single G10 currencies. The funds are total return
products where the investor gets access to the FX spot change, local institutional interest rates and a collateral
yield.
[edit]Actively managed ETFs
Actively managed ETFs are quite recent in the United States. The first one was offered in March 2008 but was
liquidated in October 2008. The actively managed ETFs approved to date are fully transparent, publishing their
current securities portfolios on their web sites daily. However, the SEC has indicated that it is willing to consider
allowing actively managed ETFs that are not fully transparent in the future. [4]
The fully transparent nature of existing ETFs means that an actively managed ETF is at risk from arbitrage
activities by market participants who might choose to front run its trades[citation needed]. The initial actively traded
equity ETFs have addressed this problem by trading only weekly or monthly. Actively traded debt ETFs, which
are less susceptible to front-running, trade their holdings more frequently. [29]
The initial actively managed ETFs have received a lukewarm response and have been far less successful at
gathering assets than were other novel ETFs. Among the reasons suggested for the initial lack of market
interest are the steps required to avoid front-running, the time needed to build performance records, and the
failure of actively managed ETFs to give investors new ways to make hard-to-place bets. [30]
[edit]Exchange-traded grantor trusts
An exchange-traded grantor trust share represents a direct interest in a static basket of stocks selected from a
particular industry. The leading example is Holding Company Depositary Receipts, or HOLDRS, a proprietary
Merrill Lynch product. HOLDRS are neither index funds nor actively managed; rather, the investor has a direct
interest in specific underlying stocks. While HOLDRS have some qualities in common with ETFs, including low
costs, low turnover, and tax efficiency, many observers consider HOLDRS to be a separate product from ETFs.
[8][31]

[edit]Leveraged ETFs
Leveraged exchange-traded funds (LETFs), or simply leveraged ETFs, are a special type of ETF that attempt
to achieve returns that are more sensitive to market movements than non-leveraged ETFs. [32] Leveraged index
ETFs are often marketed as bull or bear funds. A leveraged bull ETF fund might for example attempt to achieve
daily returns that are 2x or 3x more pronounced than the Dow Jones Industrial Average or the S&P 500. A
leveraged inverse (bear) ETF fund on the other hand may attempt to achieve returns that are -2x or -3x the
daily index return, meaning that it will gain double or triple the loss of the market. Leveraged ETFs require the
use of financial engineering techniques, including the use of equity swaps,derivatives and rebalancing to
achieve the desired return.[33] The most common way to construct leveraged ETFs is by trading future
contracts.
The rebalancing of leveraged ETFs may have considerable costs when markets are volatile. [34][35] The problem
is that the fund manager incurs trading losses because he needs to buy when the index goes up and sell when
the index goes down in order to maintain a fixed leverage ratio. A 2.5% daily change in the index will for
example reduce value of a -2x bear fund by about 0.18% per day, which means that about a third of the fund
may be wasted in trading losses within a year(0.9982^252=0.63). Investors may however circumvent this
problem by buying or writing futures directly, accepting a varying leverage ratio. [36]
[edit]ETFs compared to mutual funds
[edit]Costs
Because ETFs trade on an exchange, each transaction is generally subject to a brokerage commission.
Commissions depend on the brokerage and which plan is chosen by the customer. For example, a typical flat
fee schedule from an online brokerage firm in the United States range from $10 to $20, but can be as low as $0
with discount brokers. Due to this commission cost, the amount invested has a great bearing; someone who
wishes to invest $100 per month may have a significant percentage of their investment destroyed immediately,
while for someone making a $200,000 investment, the commission cost may be negligible. Generally, mutual
funds obtained directly from the fund company itself do not charge a brokerage fee. Thus when low or no-cost
transactions are available, ETFs become very competitive. [37]
ETFs have a lower expense ratio than comparable mutual funds. Not only does an ETF have lower
shareholder-related expenses, but because it does not have to invest cash contributions or fund cash
redemptions, an ETF does not have to maintain a cash reserve for redemptions and saves on brokerage
expenses.[38] Mutual funds can charge 1% to 3%, or more; index fund expense ratios are generally lower, while
ETFs are almost always in the 0.1% to 1% range. Over the long term, these cost differences can compound
into a noticeable difference.[39]
The cost difference is more evident when compared with mutual funds that charge a front-end or back-
end load as ETFs do not have loads at all. The redemption fee and short-term trading fees are examples of
other fees associated with mutual funds that do not exist with ETFs. Traders should be cautious if they plan to
trade inverse and leveraged ETFs for short periods of time. Close attention should be paid to transaction costs
and daily performance rates as the potential combined compound loss can sometimes go unrecognized and
offset potential gains over a longer period of time. [40]
[edit]Taxation
ETFs are structured for tax efficiency and can be more attractive than mutual funds. In the U.S., whenever a
mutual fund realizes a capital gain that is not balanced by a realized loss, the mutual fund must distribute the
capital gains to its shareholders. This can happen whenever the mutual fund sells portfolio securities, whether
to reallocate its investments or to fund shareholder redemptions. These gains are taxable to all shareholders,
even those who reinvest the gains distributions in more shares of the fund. In contrast, ETFs are not redeemed
by holders (instead, holders simply sell their ETF shares on the stock market, as they would a stock, or effect a
non-taxable redemption of a creation unit for portfolio securities), so that investors generally only realize capital
gains when they sell their own shares or when the ETF trades to reflect changes in the underlying index. [5]
In most cases, ETFs are more tax-efficient than conventional mutual funds in the same asset classes or
categories.[41] Since Vanguard's ETFs are a share-class of their mutual funds, they don't get all the tax
advantages if there are net redemptions on the mutual fund shares. [42] Although they do not get all the tax
advantages, they get an additional advantage from tax loss harvesting any capital losses from net redemptions.
[43][44]

In the U.K., ETFs can be shielded from capital gains tax by placing them in an Individual Savings
Account or self-invested personal pension, in the same manner as many other shares.[45]
[edit]Trading
Perhaps the most important benefit of an ETF is the stock-like features offered. Since ETFs trade on the
market, investors can carry out the same types of trades that they can with a stock. For instance, investors
can sell short, use a limit order, use a stop-loss order, buy on margin, and invest as much or as little money as
they wish (there is no minimum investment requirement).[46] Also, many ETFs have the capability
for options (puts and calls) to be written against them. Covered call strategies allow investors and traders to
potentially increase their returns on their ETF purchases by collecting premiums (the proceeds of a call sale or
write) on calls written against them. Mutual funds do not offer those features. [47]
For example, an investor in a mutual fund can only purchase or sell at the end of the day at the mutual fund's
closing price. This makes stop-loss orders much less useful for mutual funds, and not all brokers even allow
them. An ETF is continually priced throughout the day and therefore is not subject to this disadvantage,
allowing the user to react to adverse or beneficial market condition on an intraday basis. This stock-
like liquidity allows an investor to trade the ETF for cash throughout regular trading hours, and often after-hours
on ECNs. ETF liquidity varies according to trading volume and liquidity of the underlying securities, but very
liquid ETFs such as SPDRs can be traded pre-market and after-hours with reasonably tightspreads. These
characteristics can be important for investors concerned with liquidity risk.
Another advantage is that ETFs, like closed-end funds, are immune from the market timing problems that have
plagued open-end mutual funds. In these timing attacks, investors trade in and out of a mutual fund quickly,
exploiting minor variances in price in order to profit at the expense of the long-term shareholders. With an ETF
(or closed-end fund) such an operation is not possible—the underlying assets of the fund are not affected by its
trading on the market.
Investors can profit from the difference in the share values of the underlying assets of the ETF and the trading
price of the ETF's shares. ETF shares will trade at a premium to net asset value when demand is high and at a
discount to net asset value when demand is low. In effect, the ETF is providing a system for arbitraging value in
the market. As the initial costs are one-off, the ETF vehicle offers some cost advantages over other forms of
pooled investment vehicles.
[edit]Criticism
John C. Bogle, founder of The Vanguard Group, a leading issuer of index mutual funds (and, since Bogle's
retirement, of ETFs), has argued that ETFs represent short-term speculation, that their trading expenses
decrease returns to investors, and that most ETFs provide insufficient diversification. He concedes that a
broadly diversified ETF that is held over time can be a good investment. [48]
ETFs are dependent on the efficacy of the arbitrage mechanism in order for their share price to track net asset
value. While the average deviation between the daily closing price and the daily NAV of ETFs that track
domestic indexes is generally less than 2%, the deviations may be more significant for ETFs that track certain
foreign indexes.[5] The Wall Street Journalreported in November 2008, during a period of market turbulence,
that some lightly traded ETFs frequently had deviations of 5% or more, exceeding 10% in a handful of cases,
although even for these niche ETFs, the average deviation was only a little more than 1%. The trades with the
greatest deviations tended to be made immediately after the market opened. [49]
According to a study on ETF returns in 2009 by Morgan Stanley, ETFs missed in 2009 their targets by an
average of 1.25 percentage points, a gap more than twice as wide as the 0.52-percentage-point average they
posted in 2008.[50] Part of this so-called tracking error is attributed to the proliferation of ETFs targeting exotic
investments or areas where trading is less frequent, such as emerging-market stocks, future-contracts based
commodity indices and junk bonds.[citation needed]
The tax advantages of ETFs are of no relevance for investors using tax-deferred accounts (or indeed, investors
who are tax-exempt in the first place).[51] However, the lower expense ratios are proving difficult for the
proponents of traditional mutual funds to overcome.
In a survey of investment professionals, the most frequently cited disadvantage of ETFs was the unknown,
untested indexes used by many ETFs, followed by the overwhelming number of choices. [3]
Some critics claim that ETFs can be, and have been, used to manipulate market prices, including having been
used for short selling that has been asserted by some observers (includingJim Cramer of theStreet.com) to
have contributed to the market collapse of 2008. [52][53][54]
[edit]Issuers of ETFs
Main article:  List of exchange-traded funds
 Absa Capital issues NewFunds and house ETFs.
 AdvisorShares offers actively managed AdvisorShares ETFs.
 Ameristock issues Ameristock ETFs.
 Bips Investment Managers issues Bips (Beta Investment Performance Securities).
 BNP Paribas issues EasyETFs.
 BlackRock issues iShares.
 BMO Asset Management issues BMO ETFs.
 Charles Schwab offers several commission-free ETFs for its clients.
 Claymore Investments issues enhanced index ETFs under Claymore ETFs on the Canadian TSX.
 Claymore Securities issues specialty Claymore ETFs.
 DBX Strategic Advisors (formerly XShares Advisors) issues TDX ETFs designed for different retirement
target dates.
 Deutsche Bank issues db x-trackers ETFs, as well as managing PowerShares DB commodity- and
currency-based ETFs.
 Direxion issues Direxionshares inverse and leveraged ETFs.
 ETF Capital Management operates a global fund of ETFs.
 ETF Securities issues ETFs or specialised commodity ETCs.
 First Trust Advisors issues specialty First Trust ETFs.
 FocusShares LLC issues specialty ETFs.
 Horizons BetaPro ETFs are Canada's first leveraged and inverse leveraged ETFs.
 Invesco issues PowerShares ETFs, as well as BLDRS based on American Depositary Receipts.
 Javelin Investment Management issues JETS ETFs.
 Lyxor Asset Management issues Lyxor ETFs.
 Merrill Lynch issues HOLDRS.
 ProFunds issues ProShares inverse and leveraged ETFs.
 RevenueShares issues Revenue-Weighted ETFs.
 Rydex Investments issues RydexShares.
 SPA ETFs are fundamentally weighted ETFs.
 Source Holdings, a European joint-venture between Bank of America Merrill Lynch, Goldman
Sachs, Morgan Stanley, Nomura and J. P. Morgan issues ETFs and ETCs
 State Street Global Advisors issues SPDRs.
 Van Eck Global issues Market Vectors ETFs.
 Vanguard Group issues Vanguard ETFs, formerly known as VIPERs.
 WisdomTree issues fundamentally weighted WisdomTree ETFs.
[edit]See also
 Collective investment scheme
 Enhanced indexing
 Exchange-traded note
 Investment trust
 Pension fund
 Separately managed account
[edit]References
1. ^ "Introduction To Exchange-Traded Funds ", Investopedia,
2. ^ State Street Global Advisors and Knowledge@Wharton, ETFs Changing the Way Advisors Do Business,
According to State Street and Wharton Study, Business Wire (June 10, 2008).
3. ^ a b The Impact of Exchange Traded Products on the Financial Advisory Industry: A Joint Study of State
Street Global Advisors and Knowledge@Wharton (2008).
4. ^ a b c d e f g h Exchange-Traded Funds, SEC Release Nos. 33-8901, IC-28193, 73 Fed. Reg. 14618 (March
11, 2008).
5. ^ a b c d e Actively Managed Exchange-Traded Funds, SEC Release No. IC-25258, 66 Fed. Reg. 57614
(November 8, 2001).
6. ^ PowerShares Capital Management LLC, et al.; Notice of Application, Release No. IC-28140 (February 1,
2008), 73 Fed. Reg. 7328 (February 7, 2008) (notice); PowerShares Capital Management LLC, Release
No. IC-28171 (February 27, 2008) (order). The SEC issued orders to Bear Stearns Asset Management,
Inc., Barclays Global Fund Advisors, and WisdomTree Trust on the same day.
7. ^ American Stock Exchange Lists First Actively-Managed Exchange Traded Fund (March 25, 2008).
8. ^ a b c ETFConnect, "Index ETFs - Know Your Funds" (visited April 7, 2008).
9. ^ Peaceful Gains. "A List of exchange-traded funds". Retrieved October 23, 2009.
10. ^ a b Gastineau, Gary (2002). The Exchange-Traded Funds Manual. John Wiley and Sons.
pp. 32. ISBN 978-0471218944.
11. ^ Carrel, Lawrence (2008), ETFs for the Long Run, John Wiley & Sons, ISBN 978-0-470-13894-6
12. ^ Jennifer Bayot (December 10, 2004). "Nathan Most Is Dead at 90; Investment Fund Innovator". New York
Times. Retrieved April 23, 2008.
13. ^ Wiandt, Jim; William McClatchy (2002). Exchange Traded Funds. John Wiley and Sons.
pp. 82. ISBN 0471225134.
14. ^ Fabozzi, Frank (2003). The Handbook of Financial Instruments. John Wiley and Sons.
pp. 532. ISBN 0471220922.
15. ^ Ferri, Richard A. (2008). The ETF Book, John Wiley and Sons, 191 ISBN 0470130636.
16. ^ Investment Company Institute, Exchange-Traded Fund Assets May 2008 (June 27, 2008).
17. ^ American Stock Exchange, ETFs - Individual Investor (visited April 7, 2008).
18. ^ The Case Against Leveraged ETFs, Seeking Alpha (May 17, 2007).
19. ^ Investment Company Institute, Exchange-Traded Fund Assets February 2008 (March 28, 2008).
20. ^ Our Take on the Bond ETF Dilemma
21. ^ Stacy L. Fuller, The Evolution of Actively Managed Exchange-Traded Funds, Review of Securities &
Commodities Regulation (April 16, 2008).
22. ^ Benchmark Asset Management Company conceptualises Gold ETF
23. ^ Michael Sackheim, Michael Schmidtberger & James Munsell, DB Commodity Index Tracking Fund: An
Innovative Exchange-Traded Fund, Futures Industry (May/June 2006).
24. ^ No Gas: Barclays Halts Issuance of Natural Gas ETN
25. ^ Gold Mutual Funds Vs. Gold ETFs: It Depends on the Goal
 26. ^ The Future of Commodity ETFs
27. ^ Indicators for Trading in Government Bond ETFs
28. ^ Bond ETFs: A Viable Alternative
29. ^ David Hoffman, Active ETFs are, well, less active; Dynamics of trading translate into little active
management, Investment News (April 21, 2000).
30. ^ Ian Salisbury, 'Active' ETFs Get a Passive Response, Wall Street Journal (May 22, 2008).
31. ^ Palash R. Ghosh, HOLDRs Vs. ETFs: What Investors Should Know, Investment Advisor (August 18,
2005).
32. ^ http://www.marketwatch.com/News/Story/Story.aspx?guid={39F0677C-F099-4A5E-9EA0-
132B1260BE8F}
33. ^ http://esignal.brand.edgar-online.com/EFX_dll/EDGARpro.dll?FetchFilingHTML1?
SessionID=vAvuWLEuuiIQIH0&ID=4751031
34. ^ http://olympiainv.com/Memos/ETFs.pdf
35. ^ Fidelity the Latest to Caution on ETFs
36. ^ Short and Leveraged ETFs - 3 Pitfalls You Shouldn't Ignore on www.morningstar.com
37. ^ Fidelity Offers iShares ETFs Commission-Free on news.morningstar.com
38. ^ John M. Baker, Creation Units and the Rise of Exchange-Traded Funds, Investment Adviser (July 2000).
39. ^ Mutual Fund Fees Jump 5 Percent on moneywatch.bnet.com
40. ^ Tristan Yates: What Can we Learn from the 2008 Leveraged ETF Collapse?
41. ^ Dan Culloton, Are ETFs Really More Tax-Efficient Than Mutual Funds? Morningstar (February 14, 2006).
42. ^ The Problem With Vanguard VIPERs ETFs (2009-12-29).
43. ^ Vanguard ETFs have Different Tax Considerations Than Other ETFs (2009-12-29).
44. ^ ETF Tax Efficiency (2009-12-29).
45. ^ Tim Bennett, Exchange traded funds: profit from the City's best-kept secret, MoneyWeek (February 15,
2008).
46. ^ Gastineau, Gary (2002). The Exchange-Traded Funds Manual. John Wiley and Sons. pp. 227. ISBN 978-
0471218944.
47. ^ Larry Connors, "Trading Covered Calls with ETFs", Tradingmarkets (March 4, 2008).
48. ^ John C. Bogle, 'Value' Strategies, Wall Street Journal (February 9, 2007).
49. ^ Ian Salisbury, Some ETFs Fall Short on Pricing; Certain Trades Slip Below Value of Holdings, Wall Street
Journal (November 21, 2008).
50. ^ ETFs Were Wider Off the Mark in 2009, Wall Street Journal (February 19, 2010).
51. ^ Wilfred Dellva, Exchange-Traded Funds Not for Everyone, Journal of Financial Planning (April 2001).
52. ^ Stephen Kovaka, Just Say No to the Silver ETF, SilverSeek.com (27 April 2007)
53. ^ Theodore Butler, The Smoking Gun, SilverSeek.com (22 August 2008)
54. ^ Mark O'Byrne, Why the silver price is set to soar, MoneyWeek (August 09, 2007)
[edit]Further reading
 Carrell, Lawrence. ETFs for the Long Run: What They Are, How They Work, and Simple Strategies for
Successful Long-Term Investing. JW Wiley, 2008. ISBN 978-0-470-13894-6
 Koesterich, Russ. The ETF Strategist: Balancing Risk and Reward for Superior Returns. Portfolio,
2008. ISBN 978-1-59184-207-1
[edit]External links
 Exchange Traded Funds (ETF) London Stock Exchange (LSE)
 Exchange Traded Funds (ETFs) & Index Funds NASDAQ Stock Market
 Exchange Traded Products New York Stock Exchange
 Exchange Traded Funds (ETF) Toronto Stock Exchange (TSX)
 Exchange Traded Funds (ETFs) listed on XETRA or on Nasdaq OMX Nordic ETFSverige.se information
web site
 Using ETFs in investment portfolios - Exchange Traded Fund Basics, Investor Knowledge Centre
(Vanguard Investments Australia)
 Benefits of ETFs Australian ETF Information Network
 Cross-referenced list of funds U.S., Canadian and U.K. ETFs organized by industry, region and investment
strategy.
[hide]
v • d • e
Investment management

Common contractual fund · Fond commun de placement · Investment trust · Unit trust · Mutual fund ·

Collective investment scheme structures
fund ·Offshore fund · Unitised insurance fund

Investment Styles Active or Passive management · Value or Growth investing · Hedge fund · Socially responsible investi

Theory & Terminology Efficient-market hypothesis · Net asset value · Open-end fund · Closed-end fund

Related Topics List of asset management firms · Umbrella fund · UCITS

Categories: Companies listed on the New York Stock Exchange | Companies listed on NASDAQ | Exchange-
traded funds | Exchange-traded products | Investment | Funds | Financial markets