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Exchange-traded funds (or ETFs) are open-ended investment companies that can be traded at any time throughout the course of the day. Typically, ETFs try to duplicate a portfolio such as SPY or the Hang Seng Index, a market sector such as energy or technology, or a commodity such as gold or petroleum; however, as the number of ETFs proliferated in 2006 from under one hundred in number to almost four hundred by the end of the year, the trend has been away from these simpler index-tracking funds to Intellidexes and other proprietary groupings of stocks.
The legal structure and makeup varies around the world, however the major common features include:
* An exchange listing and ability to trade continually;
* They are index-linked rather than actively managed;
* Through dynamic and quantitative strategies, these can be dynamic rather than static indexing strategies
* The ability to handle contributions and redemptions on an in-kind basis (typically in large blocks of shares only); and
* Their "value" (but not necessarily the price at which they trade-they can trade at a 'premium' or 'discount' to the 'underlying' assets' value) derives from the value of the "underlying" assets comprising the fund.
These qualities provide ETFs with some significant advantages compared with traditional open-ended collective investments. The ETF structure allows for a diversified, low cost, low turnover index investment. This appeals to both institutional and retail investors both for long term holding and for selling short and hedging strategies.
Top U.S. ETFs:
The first, and most widely held (as of 2007) US ETF is the Standard & Poor's Depositary Receipt, abbreviated SPDR. Shares of SPDR, called "spiders", are issued by State Street Global Advisors, and listed on the American Stock Exchange under the ticker SPY. Also popular and well known are the ETFs that track the NASDAQ-100 index ("qubes") and the Dow Jones Industrial Average DIA ("diamonds"), also issued by State Street Global Advisors.
Top US-based ETFs, by assets under management (October 2007):
* SPDRs "spiders" by State Street Global Advisors (AMEX: SPY)
* PowerShares QQQ "qubes" (NASDAQ: QQQQ)
* iShares Russell 2000 Index Fund (AMEX: IWM)
* Financial Select Sector SPDR (AMEX: XLF)
* UltraShort QQQ ProShares (AMEX: QID)
* PowerShares TR Ultra QQQ (AMEX: QLD)
* Energy Select Sector SPDR (AMEX: XLE)
* iShares MSCI Japan Index Fund (NYSE: EWJ)
* DIAMONDS Trust, Series 1 (AMEX: DIA)
* iShares MSCI Emerging Markets Index Fund (AMEX: EEM)
* UltraShort S&P 500 ProShares (AMEX: SDS)
* iShares MSCI Brazil Index Fund (NYSE: EWZ)
* iShares MSCI Taiwan Index Fund (NYSE: EWT)
* Materials Select Sector SPDR (AMEX: XLB)
* iShares MSCI EAFE Index Fund (AMEX: EFA)
* Utilities Select Sector SPDR (AMEX: XLU)
* streetTRACKS Gold Shares (NYSE: GLD)
* iShares Dow Jones US Real Estate (NYSE: IYR)
* MidCap SPDRs (AMEX: MDY)
* iShares S&P 500 Index Fund (NYSE: IVV)
* iShares Russell 1000 Value Index Fund (AMEX: IWD)
European ETFs:
In the European Union many ETFs are traded as cross border UCITS III funds. For example the UK iShares and ETF Securities are Irish registered UCITS funds and trade on the London Stock Exchange. Other ETF's are offered by Indexchange Investments AG, whose funds are listed in Germany on the Deutsche Börse. Indexchange was a subsidiary of HypoVereinsbank. It has been acquired by Barclays Global Investors.
* ETFS All Commodities DJ-AIGCISM
* ETFS Energy DJ-AIGCISM
* iShares DJ STOXX 50
* iShares DJ EURO STOXX 50
* Indexchange DJ Euro Stoxx EX
* Indexchange DJ Euro Stoxx 50 EX
* Indexchange DJ Stoxx 50 EX
* Lyxor ETF DJ Euro Stoxx 50
* Lyxor ETF MSCI Europe
Indian ETFs:
IFN: http://finance.google.com/finance?q=NYSE%3AIFN
Swedish ETFs:
In Sweden seven ETFs exist as of January 2008, all provided by XACT Fonder:
* XACT Bull - leveraged ETF tracking 1,5 times daily OMXS30 returns, fee 0,6%
* XACT Bear - short leveraged ETF, Bear gains from market declines, fee 0,6%
* XACT OMXS30 - tracking 30 most traded stocks in Stockholm Stock Exchange, fee 0,3%
* XACT OMXSB - tracking 80-100 most traded stocks in Stockholm Stock Exchange, fee 0,3%
* XACT FTSE RAFI Euro - Fundamentally Weighted index, 270 stocks across Eurozone, fee 0,65%
* XACT FTSE RAFI Sweden - Fundamentally Weighted index, 100 Swedish stocks, fee 0,5%
* XACT Nordic 30 - tracking 30 most traded stocks in the Nordic region (Sweden, Norway, Finland, Denmark)
Finnish ETFs:
* SGL OMHXH25 - It is a market value weighted index that consists of the 25 most-traded stock classes. Provided by Seligson & Co Fund Management
* XACT OMXH25 - Same as above by Handelsbanken Mutual Fund Company Ltd.
Japan ETFs:
* Listed in Osaka Securities Exchange
o 1320 Daiwa ETF - Nikkei 225 -- tracks the Nikkei 225
o 1321 Nikkei 225 Exchange Traded Fund (Nomura) -- tracks the Nikkei 225
o 1328 Gold-Price-Linked Exchange Traded Fund
o 1309 SSE50 Index Linked Exchange Traded Fund
o 1312 Small Cap Core Index Linked Exchange Traded Fund (Russell/Nomura)
Sector ETFs:
Sector ETFs may track sector-based indexes or simply correspond to a basket of companies thought to be representative of a specific market sector.
Country Specific ETFs:
* Market Vectors Russia ETF - AMEX: RSX
SPDR Sector ETFs:
* Consumer Discretionary - AMEX: XLY
* Consumer Staples - AMEX: XLP
* Energy - AMEX: XLE
* Financials - AMEX: XLF
* Health Care - AMEX: XLV
* Industrials - AMEX: XLI
* Materials - AMEX: XLB
* Technology - AMEX: XLK
* Utilities - AMEX: XLU
Van Eck Sector ETFs:
* Agribusiness - AMEX: MOO
* Environmental Services - AMEX: EVX
* Global Alternative Energy - AMEX: GEX
* Gold Miners - AMEX: GDX
* Nuclear Energy - AMEX: NLR
PowerShares Sector ETFs (not exhaustive):
* Aerospace & Defense - AMEX: PPA
* Cleantech - AMEX: PZD
* Financial Preferred - AMEX: PGF
* Listed Private Equity - AMEX: PSP
* Lux Nanotech - AMEX: PXN
* Water Resources - AMEX: PHO
* WilderHill Clean Energy - AMEX: PBW
* WilderHill Progressive Energy - AMEX: PUW
* Dynamic Banking - AMEX: PJB
* Dynamic Basic Materials Sector - AMEX: PYZ
* Dynamic Biotechnology & Genome - AMEX: PBE
Commodity ETFs:
Commodity ETFs, also known as exchange-traded commodities (ETCs), track a specific commodity or a general commodity index, such as:
* Gold exchange-traded funds (GETFs), such as streetTRACKS Gold Shares (NYSE: GLD), iShares Comex Gold Trust (AMEX: IAU) and PowerShares DB Gold Fund (AMEX: DGL)
* Silver by iShares (NYSE: SLV) and PowerShares DB Silver Fund (AMEX: DBS)
* Precious Metals by PowerShares DB Precious Metals Fund (AMEX: DBP)
* Petroleum by ETF Securities (LSE: OILB, LSE: OILW) & United States Oil Fund LP ETF Template:USO and PowerShares DB Oil Fund (AMEX: DBO)
* Energy by PowerShares DB Energy Fund (AMEX: DBE)
* Steel ETFs, such as Van Eck's Market Vectors Steel (AMEX: SLX) which tracks the Amex Steel Index.
* Other base metals such as Powershares DB BASE METL (AMEX: DBB)
* DBC Fund tracking the Deutsche Bank Liquid Commodity Index - Optimized Yield (DBLCI-OY) by Deutsche Bank (NYSE: DBC)
* Lyxor ETF Commodities CRB tracking the Reuters Jefferies CRB Index by Lyxor Asset Management (Euronext: VLCRB)
* EasyETF GSCI tracking the Goldman Sachs Commodity Index by Axa Investment Managers and BNP Paribas (FWB: GSCI and SWX: [4])
* GSG
Since September 2006, numerous ETFs have been available on the London Stock Exchange [5]. ETCs invest in real commodities (via future contracts or storing gold bars, for example) and not in commodity producing companies, such as mining companies, though of course, mining-company ETFs also exist.
The stated purpose of silver and gold ETFs are to track the price of gold and silver. They are NOT redeemable for the underlying instrument and unless rigid audit methods are put in place (and there is some debate about the silver ETFs holdings as they do not provide audits) it is possible that there are not physical, serialized bullion physically backing the shares. They are also subject to increased volatility and they only represent a promise. If somebody defaults on that promise, the investor may not have anything to show for it thereby meaning they might have lost all of their investment. These concerns have done little to slow the popularity of precious metal ETFs.
Short ETFs:
Short ETFs enable investors to profit from declines in an underlying index without directly selling short any securities. Investors who think an index will decline purchase shares of the short ETF that tracks the index, and the shares increase or decrease in value inversely with the index, that is to say that if the value of the underlying index goes down, then the value of the short ETF shares goes up, and vice versa. Some popular short ETFs include:
* UltraShort S&P500 ProShares - AMEX: SDS
* UltraShort QQQ ProShares - AMEX: QID
* UltraShort Financials ProShares - AMEX: SKF
* UltraShort Russell2000 ProShares - AMEX: TWM
* UltraShort Dow30 ProShares - AMEX: DXD
* UltraShort Real Estate ProShares - AMEX: SRS
* UltraShort MidCap400 ProShares - AMEX: MZZ
* Short S&P500 ProShares - AMEX: SH
* Short Dow30 ProShares - AMEX: DOG
* UltraShort Oil & Gas ProShares - AMEX: DUG
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