donwloadimg

Download App

Log in to access Online Inquiry

What Is An ETF (exchange Traded Fund)?

Views 17692022.08.03

https://courseimg.futunn.com/202206300000035530ba6e1ed61.png

Key takeaways

  • Many Exchange Traded Funds (ETFs ) are designed to passively track a particular market index. These ETFs aim to achieve the same return as the index that they track by investing in all or a representative sample of the stocks included in the index.

  • ETFs may help provide portfolio diversification, but it is important to understand some ETFs have a very narrow investment focus and are considered non-diversified funds.

  • There are many different types of ETFs that invest in many different securities, such as but not limited to stocks, commodities, and bonds. ETFs may also invest across many different market sectors and countries.

To many novice investors and busy investors, the most difficult part may be finding a good company to invest in.

Therefore, Warren Buffett, who is famous for his successful career picking stocks, had shared a tip for his believers. He said most investors are better off with a simpler approach that's still very effective: Invest in index funds.

logo

In my view, for most people, the best thing to do is to own the S&P 500 index fund.

-Buffett said in Berkshire Hathaway's virtual annual meeting on May 2.

So what is an Exchange Traded Fund (ETF)?

ETFs are a type of exchange-traded product that offers investors a way to pool their money in a fund that makes investments in stocks, bonds, or other assets and, in return, to receive an interest in that investment pool. ETF shares are traded on a national stock exchange and at market prices that may or may not be the same as the net asset value ("NAV") of the shares, that is, the value of the ETF's assets minus its liabilities divided by the number of shares outstanding. ETF share prices fluctuate all day as the ETF is bought and sold.

There are numerous variations, but the majority seek to passively track an index. Depending on which index the ETF is supposed to track, it will typically just buy the underlying investments of that specific index.

This means for this specific type of ETFs, there is no fund manager actively trying to pick the investments, and its performance should be very similar to the index it is tracking (passive funds). For example, the S&P 500 index in the US market rose by 26.89% in 2021. So you could assume that an ETF designed to mirror the S&P would have similar performance prior to factoring in fees and expenses.*

The idea is that you get the similar performance of the index, with typically lower expenses when compared to active funds, since there is no active fund manager to pay. It also gives you the diversification of the index; in our example, these 500 stocks of the S&P 500 Index.

For some investors, it might be appealing because they are immediately spreading risks due to the ETF consisting of 500 American stocks, and they don't have to buy all the stocks individually themself. It is a diversified investing alternative. Please understand that diversification is a tool used to help manage risk; it does not ensure a profit or protect against loss.

In conclusion, an ETF is a security that consists of a selection of securities (often stocks) with individual weights based on the index rules of the index the ETF is aiming to track. In general, actively managed ETFs cost more than passively managed index ETFs. Low cost may have a massive impact on the value of your investments over time.

Trade like a pro with moomoo

Get free stock and start your professional trading today

Terms and conditions apply right-arrow
This presentation is for informational and educational use only and is not a recommendation or endorsement of any particular investment or investment strategy. Investment information provided in this content is general in nature, strictly for illustrative purposes, and may not be appropriate for all investors. It is provided without respect to individual investors’ financial sophistication, financial situation, investment objectives, investing time horizon, or risk tolerance. You should consider the appropriateness of this information having regard to your relevant personal circumstances before making any investment decisions. Past investment performance does not indicate or guarantee future success. Returns will vary, and all investments carry risks, including loss of principal.Moomoo is a financial information and trading app offered by Moomoo Techonologies Inc.In the U.S., investment products and services available through the moomoo app are offered by Moomoo Financial Inc., a broker-dealer registered with the U.S. Securities and Exchange Commission (SEC) and a member of Financial Industry Regulatory Authority (FINRA)/Securities Investor Protection Corporation (SIPC).In Singapore, investment products and services available through the moomoo app are offered through Moomoo Financial Singapore Pte. Ltd. ("Moomoo Financial SG") regulated by the Monetary Authority of Singapore (MAS). Moomoo Financial SG is a Capital Markets Services Licence (License No. CMS101000) holder with the Exempt Financial Adviser Status. This advertisement has not been reviewed by the Monetary Authority of Singapore.In Australia, financial products and services available through the moomoo app are provided by Futu Securities (Australia) Ltd, an Australian Financial Services Licensee (AFSL No. 224663) regulated by the Australian Securities and Investment Commission (ASIC). Please read and understand our Financial Services Guide, Terms and Conditions, Privacy Policy and other disclosure documents which are available on our websites https://www.futuau.com and https://www.moomoo.com/au. Moomoo Technologies Inc., Moomoo Financial Inc., Moomoo Financial Singapore Pte. Ltd. and Futu Securities (Australia) Ltd are affiliated companies.
Expand

Recommended