What are ETFs (Exchange Traded Funds)?

What are ETFs (Exchange Traded Funds)?

What is an ETF

ETF is a type of investment fund whose shares are traded on various exchanges. The abbreviation ETF stands for Exchange Traded Fund. ETF is a well-constructed portfolio consisting of stocks, raw materials, currencies and other instruments, the index of which is displayed in quotes on exchanges.

The shares of ETFs are, in fact, analogous to the shares of companies that are part of it. It often happens that ETF funds own shares of companies included in popular indices - DOW 30, S&P 500, Nasdaq and others.

One of the main indicators of the stock market, is the rise or fall of the stock indices for a particular country, the U.S. indices we indicated above. But, the index is only a litmus paper, which cannot be bought, that's why some ETF funds, after their creation, buy a portfolio of all shares included in the index. An investor who buys shares of ETF funds acquires a fully diversified portfolio and doesn't waste time on a long stock market analysis.

History of ETFs

The practice of creating ETF funds does not have much history, because the first such fund was created in 1978, it was an American company called State Street Global Advisors. The main idea of this fund was to invest in shares of companies included in the S&P 500 index. For trading on the exchange, the fund issued its depositary receipts with SPDR ticker, which were nicknamed "Spiders". Since that time, ETF funds have started to emerge aggressively, but State Street Global Advisors is leading the way in terms of capital under management. According to the latest data, State Street Global Advisors manages $2.4 billion.

The most popular ETFs

Based on the principle of State Street Global Advisors, more and more ETF funds began to be created, which invested money in shares of companies included in other indices. For example, the PowerShares fund invested in shares of the Nasdaq 100, the Dow Diamonds fund fully copied the Dow Jones index, the Middies fund invested in stocks of 400 companies included in the S&P 500.

The largest ETF fund is iShares, which belongs to Barclays Global Investors Group. According to estimates of well-known analytical agencies, the iShares fund is managed by about 5 trillion dollars. Also, we can highlight the Vanguard fund, which is managed more than 2 trillion dollars. Investors who bought "shares" of the fund have a diversified portfolio, since specialists of Vanguard allocate funds to various indexes and sectors.

Completion

Winklevoss brothers want to create their own ETF fund, whose money would be placed in various kinds of cryptocurrencies. At the moment, they haven't been able to do that. But once they get all the approvals they need to create an ETF fund, you can rest assured that the market will go up.