Exchange Traded Funds, or ETFs, are portfolios that trade on a stock exchange like shares of any company. They can be traded throughout market hours, sold short and margined. They are generally designed to track an index and offer an easy way to broadly diversify personal holdings.
ETFs are open-ended funds with special characteristics. Since most exchanges of the shares in the secondary market occur between two individuals rather than an individual and the fund, the manager needn’t worry about redemptions.Â Although brokers can redeem large blocks of the shares, the redemption can be made “in kind,” leaving the risks of disposing of the portfolio holdings in the hands of the redeemer. Further, since the fund can exchange the most highly appreciated stocks without tax consequences, ETFs tend to have a tax advantage over other types of mutual funds. Finally, there is a management cost advantage because the fund manager does not have to keep track of who owns the shares.For more information, see all articles on: International Investing, Investing in Stocks, Investing in bonds, Portfolio Management See also: