Exchange Traded Funds Primer

Exchange Traded Funds (ETFs) are a group of passive index funds that trade on an exchange like an individual stock. At the time of writing there are 162 ETFs with $220 billion in assets under management trading on U.S. exchanges.

ETFs hold a basket of securities that mimic the results of various indices including broad stock and bond market, industry sectors, and international securities. New niche funds are being created regularly. Recent introductions include gold and China funds, and there are rumors that a silver ETF will soon be available.

The most popular ETF is the NASDAQ 100 Tracking Stock (QQQQ) trading 50 million shares a day on the NASDAQ Stock Market. The volume leaders on the American Stock Exchange are the SPDRS (SPY) tracking the S&P 500 trading 25 million shares per day, the Energy SPDR (XLE), Japan iShares (EWJ), Russell 2000 iShares (IWM), and the Financial SPDR (XLF).

ETFs are widely used by institutional and individual investors as a tool for diversification, risk reduction, hedging, and an efficient way to acquire a basket of securities providing partial ownership in all holdings with only a single commission and small administration fees. ETFs are also transparent, meaning that investors know at all times what securities they are invested in.

There are now also options and futures contracts trading on of ETFs. The Chicago Board Options Exchange (CBOE) lists 43 options on ETFs, while the Chicago Mercantile Exchange (CME) offers futures contracts on the S&P 500 Depository Receipts, NASDAQ 100 Tracking Stock, and Russell 2000 Index Fund. And One Chicago, a joint venture between the CBOE, CME, and Chicago Board of Trade (CBOT), offers an electronically traded futures contract on the DIAMONDS Dow Jones Industrial Average ETF.

There are also a number of web sites offering information on Exchange Traded Funds. Check out Amex.com, Yahoo! Finance's ETF Center, ETFConnect, or ETFera.com. Meanwhile, investment research firm Morningstar compares the fair value estimates to market prices of exchange traded funds holdings to determine whether a fund is over or undervalued.

Exchange Traded Fund's low costs, liquidity, and diversification make them an excellent alternative to mutual funds, broad based index investments, and individual stocks in niche sectors.

Mark Mahorney is the owner of Cofishop Media Group located in Keystone, CO. Cofishop is a diverse marketing services organization and online content syndicator of a suite of financial sites. Mark has been a contributing author to The Motley Fool and published in numerous leading financial publications.

Mark inks The Market Speculator newsletter, a hedged approach to market profits for individual investors. You can also read his scrawls, scribbles, rambles, and rants on the markets and whatever other ilk gets his ire at BlogginWallStreet.com and Marketblog.com.

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In The News:

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A young investor’s guide to mutual funds  Economic TimesMany young investors, who are barely a year or two old in their career, are eager to start investing in mutual funds. ETMutualFunds.com receive many queries on ...
Govt increases limit to disclose investment in stocks, mutual funds for employees  Moneycontrol.com*Service* rules say no government servant shall speculate in any stock, share or other investment.
Actively-managed large cap mutual funds poised for a comeback  Economic TimesDefying predictions of their imminent irrelevance, some actively-managed large cap mutual fund schemes have bounced back to the top of the return chart.
Here are a few mutual funds that stocked up on YES Bank in Q4FY19  Business StandardShares of YES Bank tanked 30 per cent in trade on Tuesday, after the bank reported a massive Rs 1,507 crore loss in the fourth quarter of financial year 2018-19 ...
Mutual funds shooting themselves in the foot?  Economic TimesWhat if banks take a leaf out of Kotak and HDFC Mutual Funds' decision to direct investors to come another day to get their money instead of paying them on the ...
What top mutual funds bought and sold last month  LivemintMumbai: Inflows into Indian equity mutual funds in January were the smallest in two years as heightened market volatility and political uncertainty cooled ...
All you need to know about liquid mutual funds  Economic TimesThe NBFC crisis has brought liquid funds back in favour as they carry lower risk than corporate FDs.
Index mutual funds see 60% jump in assets in a year as actively managed funds struggle  Economic TimesIndex mutual funds — a category that aims to mimic returns of benchmarks, like Nifty or Sensex — have seen their assets surge 60% over the past one year as ...
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MF portfolio doctor: Babji needs to exit direct investments in stocks, take mutual funds route  Economic TimesThe Portfolio Doctor assesses the health of the fund portfolio, examines the schemes and their suitability with regard to the goals.
Can mutual funds give multibagger returns like stocks?  Economic TimesStocks can be multibaggers. They can offer extraordinary returns in a very short period. Can mutual funds ever do that? This was a question thrown at Rajeev ...
Should you invest in algorithm-based quant mutual funds?  Economic TimesQuant funds work on a data-driven model that relies on a mix of parameters and algorithms to identify the right stocks at the right time. But can they beat actively ...
Flows into mutual funds revive in May as Modi win seems to spur risk demand  LivemintFlows into Indian equity mutual funds in May rebounded from the smallest in 31 months as Prime Minister Narendra Modi's comfortable electoral win spurred ...
Mutual funds or direct equity investment – which is better?  Economic TimesOne big question that often dogs investors is which investing option should they opt for: mutual fund or direct equity? Katalyst Wealth's Ekansh Mittal ends your ...
Stick to MFs if you lack knowledge on stocks  LivemintWhile equity is surely the way going forward considering your age and the financial goals, how you buy in equity is important.Direct stocks work very well if done ...
Top 25 equity mutual funds failed to deliver positive returns in June  Economic TimesNEW DELHI: Top 25 mutual fund schemes, managing retail money in excess of $1 billion (Rs 7,000 crore) each, failed to deliver positive returns in June.
Top 30 stocks that fund managers bought & sold in March; do you own any?  Moneycontrol.comData for equity flows into a mutual funds for March came as a breather after a weak February. Increase in net inflows in equity and income category led to the ...
7 stocks most favoured by mutual funds over last one year  Economic TimesAs the markets hit a speed bump, stocks favoured by mutual funds appear to be safer bets.
What India's top three mutual funds bought and sold in May  LivemintInflows into Indian equity mutual funds in May rebounded from the smallest in 31 months as Prime Minister Narendra Modi's comfortable electoral win spurred ...
Active mutual funds fail to reflect index gains  Economic TimesThe Nifty, which has hit all-time highs for the second time in April, has advanced 12% in the last one year. But these gains are yet to reflect in many mutual funds' ...
Should investors with very long term horizon always pick small cap mutual funds?  Economic TimesMutual fund investors assume that their risk taking ability goes up if they have really long investment horizon.
Mutual funds sell several blue chips stocks, buy mid-caps in March  Business StandardDomestic money managers were seen pruning their holdings in several blue-chip stocks, including Reliance Industries (RIL) and Housing Development Finance ...
Investment limits Sebi prescribes for mutual funds  LivemintIn case of unrated debt instruments, a mutual fund cannot invest more than 10% of the portfolio in a single issuer and 25% in all such securities.In case of listed ...
How income from stocks and mutual funds are taxed for an individual  Moneycontrol.comCapital gains from transfer of unlisted share are considered as STCG where period of holding is less than or equal to 24 months, and LTCG when holding period ...
What India's top three mutual funds bought and sold in February  LivemintStock funds took in a net ₹5130 crore, a 17% drop over January, data from the Association of Mutual Funds in India show .Here's what the top three asset ...
Best mutual funds to invest for five years  Economic TimesIf you have any mutual fund queries, message on ET Mutual Funds on Facebook. We will get it answered by our panel of experts.
Equity funds record highest ever exposure in banking stocks in March 2019  Business TodayAs per the latest data available from the SEBI, overall deployment of equity funds in bank stocks grew around 52 per cent year-on-year (y-o-y) in the month ...
What top 5 money managers bought and sold in February  Economic TimesFebruary was the fourth consecutive month of decline in net investment into equity mutual funds.
First-time investors can look at these mutual funds for long term  Economic TimesInvestors, who were waiting on the sidelines for the uncertainty to recede, are now looking to deploy their cash. But, valuations remain steep.
How much should I invest in ELSS, large-, mid-, small-cap mutual funds?  Economic TimesI am 25 years old. I earn around Rs 50,000 per month. Firstly, how much should I invest in large cap or small and mid cap funds as well as tax saving mutual ...
What makes an ELSS the ideal first mutual fund?  Economic TimesMany mutual fund advisors say ELSS or Equity Linked Saving Schemes are ideal for investors to begin their investments in equity mutual funds. They say the ...
ITR filing: Income tax department makes disclosing LTCG from stocks, equity mutual funds simpler  LivemintThe Finance Bill 2018 reintroduced tax on LTCG made from listed shares and equity-oriented mutual fund.You only need to disclose the total LTCG from ...
Should you invest in mid- and small-cap funds now?  LivemintWith the new government taking office with a massive majority, it has the elbow room to push through the reforms. No wonder markets are expecting the ...
Sebi allows mutual funds in exchange traded commodity derivatives  Economic TimesNEW DELHI: The Securities and Exchange Board of India (Sebi) on Tuesday allowed mutual funds to participate in exchange-traded commodity derivatives ...
I want to invest Rs 1 crore in stocks and mutual funds for 5 years. How should I invest?  Economic TimesYou may consider the following asset allocation: 40% in large-caps; 40% in large and mid-cap, or multi-caps; and remaining 20% in mid- and small-cap funds.
Why do wealth managers recommend multi cap mutual funds?  Economic TimesMany wealth managers believe multi-cap funds are a good starting point for long-term investors, specially those using SIPs for wealth creation.
Top 8 most common mutual fund investing mistakes and how to avoid them  Business StandardMutual funds, especially equity mutual funds, have played a pivotal role in helping retail investors create wealth over the last 25 years since they actually ...
A look at mistakes committed by investors of equity mutual fund schemes  Moneycontrol.comBalwant Jain. The interest of investors has been shifting from direct equity investing to equity mutual funds over a few years. Though this is a welcome trend, ...

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