Exchange-traded fund

An exchange-traded fund (ETF) is a type of investment fund that is also an exchange-traded product, i.e., it is traded on stock exchanges.[1][2][3] ETFs own financial assets such as stocks, bonds, currencies, debts, futures contracts, and/or commodities such as gold bars. The list of assets that each ETF owns, as well as their weightings, is posted on the website of the issuer daily, or quarterly in the case of active non-transparent ETFs. Many ETFs provide some level of diversification compared to owning an individual stock.

An ETF divides ownership of itself into shares that are held by shareholders. Depending on the country, the legal structure of an ETF can be a corporation, trust, open-end management investment company, or unit investment trust.[4][5] The shareholders indirectly own the assets of the fund and are entitled to a share of the profits, such as interest or dividends, and they would be entitled to any residual value if the fund undergoes liquidation. They also receive annual reports. An ETF generally operates with an arbitrage mechanism designed to keep it trading close to its net asset value, although deviations can occur.[6]

The largest ETFs, which passively track stock market indices, have annual expense ratios as low as 0.03% of the amount invested, although specialty ETFs can have annual fees of 1% or more of the amount invested. These fees are paid to the ETF issuer out of dividends received from the underlying holdings or from selling assets.[7]

In the U.S., there are $5.4 trillion invested in equity ETFs and $1.4 trillion invested in fixed-income ETFs. In Europe, there is $1.0 trillion invested in equity ETFs and $0.4 trillion invested in fixed-income ETFs. In Asia, there are $0.9 trillion invested in equity ETFs and $0.1 trillion invested in fixed-income ETFs. In the first quarter of 2023, trading in ETFs accounted for 32% of the total dollar volume of stock market trading in the U.S., 11% of trading volume in Europe, and 13% of trading volume in Asia.[8]

In the U.S., the largest ETF issuers are BlackRock iShares with a 34% market share, The Vanguard Group with a 29% market share, State Street Global Advisors with a 14% market share, Invesco with a 5% market share, and Charles Schwab Corporation with a 4% market share.[9]

ETFs are regulated by governmental bodies (such as the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission in the United States) and are subject to securities laws (such as the Investment Company Act of 1940 and the Securities Exchange Act of 1934 in the United States).

Closed-end funds are not considered to be ETFs; even though they are funds and are traded on an exchange they do not change the number of shares they have issued, unlike an ETF. Exchange-traded notes are debt instruments that are not exchange-traded funds.

  1. ^ "ETFs 101". Fidelity Investments.
  2. ^ "Exchange-Traded Funds (ETFs)". U.S. Securities and Exchange Commission.
  3. ^ "Add an ETF without breaking the bank". The Vanguard Group.
  4. ^ "Actively Managed Exchange-Traded Funds - SEC Release No. IC-25258, 66 Fed. Reg. 57614". November 8, 2001. Archived from the original on May 3, 2017. Retrieved August 27, 2017.
  5. ^ "SPDR ETFs: Basics of Product Structure". State Street Global Advisors. July 30, 2014. Archived from the original on February 20, 2017.
  6. ^ "17 CFR Parts 239, 270, and 274 Exchange-Traded Funds; Proposed Rule" (PDF). U.S. Securities and Exchange Commission. March 18, 2008. Archived from the original (PDF) on July 6, 2017. Retrieved August 27, 2017.
  7. ^ "ETF Fees: How are They Deducted & How Much Do They Cost?". SoFi. January 15, 2021.
  8. ^ "Global ETF Market Facts". BlackRock.
  9. ^ "Market share of largest providers of Exchange Traded Funds (ETFs) in the United States". Statista.