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Finance: What Are ETFs? 275 Views


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Description:

What are ETFs? They are Exchange Traded Funds, and unlike index funds, they don't really change, or rebalance, based on the industries represented by their exposure. They're set once, and... that's it. From there, the performance of the fund, just... does its thang.

Language:
English Language

Transcript

00:00

Finance allah shmoop shmoop what are efs Well first this

00:07

is the random financial terms you want to be asked

00:10

in the financial term spelling bee and second you should

00:13

know that e t f stands for exchange traded fund

00:18

f's are kissing cousins of index funds with one key

00:22

subtle but important difference f don't change at least generally

00:26

speaking an index fund might reflect the transportation industry and

00:31

have so much exposure to ford gm united airlines tesla

00:35

etcetera But it's required tohave say sixty five percent of

00:39

its exposure to companies based in the united states in

00:42

its charter every month that index fund has to re

00:46

balanced that exposure So if the auto companies do very

00:49

poorly in a given month index fund has to re

00:53

balance by buying mohr shares of those auto companies to

00:56

make up the difference you know given that they've performed

00:59

poorly relative toa airlines trucking company's railroads jeff howard segways

01:03

and so on But in a t f the fund

01:06

is basically set once and the shares just really kind

01:10

of float if over a decade the auto companies do

01:13

really well then in an e t f the auto

01:16

companies will just have a dominant influence on the overall

01:19

performance of the fund The management company doesn't have to

01:23

buy and sell shares regularly in an e t f

01:25

till fulfill the legal promises it agreed to at the

01:28

outset of the fund in the way in index fund

01:31

re balances its shares by buying and selling them So

01:34

what does that mean to you Well it means that

01:36

fc may drift in given directions like this guy For

01:40

example a generic technology e t f might have had

01:43

a total exposure of say five percent to internet stocks

01:47

in the beginning of nineteen ninety seven but amazon ebay

01:50

yahoo netflix and a well performed massively better than the

01:54

broader technology market which did well but just not omg

01:58

dot com well so that five percent waiting twenty years

02:02

later might be more like fifty percent or mohr of

02:05

that particular e t f but one other key aspect

02:08

of it is that it's traded like a stock i

02:11

e in one block and trade throughout the day there's

02:15

a bid and an ask price The bids are all

02:18

added up and shares in the fund can be bought

02:20

And sold at any time throughout the day Although the

02:23

market sets the price of an f just like it

02:25

does on a stock Well there now you're all ready

02:28

for the financial term spelling bee And they might also

02:31

ask you to spell lipo Yeah you might want to 00:02:33.69 --> [endTime] write that one on your arm

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