Exchange Traded Funds, or ETFs as they are better known, are traded on a stock exchange, rather like a stock itself. Giving you a brief overview of this often overlooked or misunderstood asset class is Hannah Stevenson, Staff Writer here at Acquisition International Magazine.
ETFs are a form of marketable security tracking either an index, a commodity, bonds, or a basket of assets. Most commonly indexed, they are remarkably similar to mutual funds, with one key difference: they are traded like common stock on an exchange, and as such their price fluctuates more frequently as ETFs are traded throughout the day.
Offering both tax efficiency by generating fewer taxable events than mutual funds and reduced costs, ETFs make a great addition to any portfolio. As an alternative asset class, they are ideal for diversifying a portfolio and can complement similar assets such as mutual funds or hedge funds. As they can be bought and sold through stock brokers they are great for High Net Worth Individuals seeking to move into new asset classes.
Ownership of any assets owned by the ETF itself is divided into shares, which are owned by the shareholders. Offering a low-cost alternative entry into markets investors may otherwise have overlooked, ETFs have many benefits, although, as with all investments, there are risks.
Working for both long term and short term investment strategies, ETFs are a flexible option that offer all the benefits of ordinary stock, with the added bonus of being traded in a similar fashion to common stock. There are types of ETF to suit every investor, including Bond ETFs, Leveraged ETFs, Inverse ETFs and Actively Managed ETFs.
To find out more about ETFs check out the Finance of our website, where you can browse the latest comment, insight and updates on this and many other forms of funds and the finance industry in general to gain the knowledge you need. There are also a range of ETFs offered by our award winners: you can browse our winner’s lists HERE, and know that every provider has been recognised by our respected judges and renowned research team.