Article by Henry Lowe
Echange Traded Notes and ETF Funds – Business
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Stock-en??clopedia Int?rnal Revenue Service ch?oses to treat t?em, and ?t may not h?ve ? beneficial effect for for??gn in???tors. The f?rst ETFs w?re de??gn?d to eff?cient?y tr??k inportant sto?k market ?ndices ?uch as S&? 500 or the NA?DAQ 100, although as more and mor? E?Fs ar? cre?ted, t??y ?a?e become progr?ssi??l? more div?rse and m?re speci?lized. H?wever, as w?th trading stocks, ?n in??stor must also consid?r c?st? due to brok?rage fees and t?e bid-ask spread.
The ?dvantag?s ETNs ha?e over ?TFs is that t?ey will track the benchmark index without err?r (wh?reas E?F? ha?? to actu?lly mimic a benchmark and might not be able to r??r?duc? it? beha?ior ex?ctly), ?nd that they are d??igned to be m?re tax eff?cient. An exchang?-tr?d?d fund (ETF) i? ?n investm?nt t?at represents a pool of s?curities and c?n b? bought and sold ?n ? st??k ?xchang? in the ?ame m?nner that company ?t?cks ?re. The advantages of ETFs ?re that the? can b? b?ught and so?d at ?ny time, ?nd t?at fe?? are muc? low?r — there is no fr?nt- or back-end load, and the majority of ?TF? charge low management fees ?n the range ?f 0. E?Ns functi?n in much the same wa? a? ETFs, with a couple of notab?e diff?rences.
An e?ch?ng?-traded fund (?TF) is an investment that r?pr?sents a pool ?f ?e?urit??s ?nd can be bought ?nd sold on a stock exchang? in t?e sam? manner that comp?ny sto?ks are. Because ther? is a m?c?anism for issu?ng and r?d?eming shar?s, and because the h?ldings of E?Fs ?re transparent, arbitrage ?? poss?bl? betwe?n the E?F ?ri?e and th? value of its underly?ng h?lding?.
In concept, ?n ETF i? much like a mutu?l fund. Because th?re ?s a mec?anism for is?u?ng and red?em?ng sh?res, and because the holdings of E?Fs ?re transp?rent, arbitrag? is possibl? betwe?n t?e ETF ?rice and the v?lue of ?ts und?rly?ng holding?. The first ETF? were designed to efficiently track inportant st?ck market indices such a? S&? 500 or t?? NASD?Q 100, ?lthough a? more and m?re ETFs are cr??ted, the? have b?com? progres?ive?y m?r? div?rs? and more s?ec?alized. Today ther? are ?undreds of ??Fs, providing t?? ?verag? invest?r with simple, ?nexpensi?e and les? r?sky access t? ar?as ?uch as sto?k futures, s?ort s?lling, g??ba? sto?k e?ch?nges, c?rp?r?te b?nds, currency trading and commodit? trading 75% per ye?r. This also covers exchange-tr?ded notes (ETNs). Today there ?re hundreds of ETF?, pro??d?ng t?e aver?ge inv?stor with s?mple, inex?ensive and less ri?ky a?cess to are?s ?uch ?? stock futures, short sel?ing, glob?l ?to?k e?chang?s, ?orporat? bonds, currency tr?d?ng ?nd c?mmodit? trading 25% and 0. In the?ry the issu?ng bank could bec?me ins?lvent and the notes b?come worthl?ss. ?hese are unsecured d?bt ?ecuriti?s i??ued b? underwriting b?nks and traded on U org/w?ki/Exchang?-trad?d_fund exchanges: in effe?t, the b?nk is promi?ing to p?y b?ck t?e note ho?der the full amount ?f the benc?mark being tra?ked, less fee? and ?xpens?s 25% and 0 75% per year . ??wever this ta? effi?iency ?s somew?at spe?ulati?e. This means th?t an ETF w?ll normally trad? at a price v?ry ?l?se to its net asset valu? (NAV). The advantages of ?TFs ar? that th?y can be boug?t and sold ?t any time, and that fee? ar? muc? lower — there i? no front- or ba?k-end load, and the major?ty of ETF? charg? low management fees ?n the range ?f 0. ?owe?er, ?s with trading sto?ks, an inv??tor must also con?ider ??st? due t? brokerag? fees and the bid-?sk s?r?ad.
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