What are ETFs?
An ETF, or exchange-traded fund, is a relatively new investment product that shares characteristics of both a mutual fund and a stock. Unlike mutual funds ETFs trades on a stock exchange, just like a stock, and can hold a diversified mix of stocks, bonds, commodities, currencies, options or a blend of assets, like a mutual fund.
Since exchange-traded funds were first offered, they have evolved to offer a range of benefits and are managed using a variety of investment approaches.
Since exchange-traded funds were first offered, they have evolved to offer a range of benefits and are managed using a variety of investment approaches.
Passively Managed ETFs
Passive ETFs track an index or sector. While passive investing offers investors a convenient and low-cost diversification, it isn't the only strategy.
Actively Managed ETFs
Active ETFs can be actively managed by professional investment managers with investment strategies like a mutual fund. They can be based on an index, sector focused, involve the use of leverage or invest in other security products like mutual funds.
Why Invest in Actively Managed ETFs?
- DIVERSIFICATION - Buying an ETF allows an investor to hold a variety of securities, rather than ownership of individual stocks or bonds.
- PROFESSIONAL MANAGEMENT – ETFs are well suited for investors who may not have the time or expertise to invest directly in individual securities like stocks or bonds and want the convenience of having a professional asset manager making the investment decisions.
- ACCESS – any shareholder that has access to a brokerage account can purchase shares of an ETF.
- LIQUIDITY - Like stocks, exchange-traded funds are “traded on an exchange” so they can be bought and sold throughout the day between individual investors. Being able to trade ETFs like a stock means ETFs can be used for shorter-term exposure or as part of a long-term investment strategy.
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