An ETF Mirrors the Price Movement of its Underlying Assets:
An exchange traded fund (ETF) is an investment fund that tracks an index, commodity, bonds, or some basket of assets. Over the course of the trading day, an ETF will trade at or near the underlying value of the assets it holds. A few examples of what individual ETF’s can track are indexes like the S&P 500 and Russell 2000, as well as commodities like gold, silver, crude oil, and natural gas. Major influences on an ETF’s price-action include earnings reports, economic data, and geopolitical news.
ETF shares are traded on stock exchanges much like common stocks, making them easy for individual investors to buy and sell. In other words, investors can gain broad exposure to the market with the ease of buying a single stock. In addition, ETF’s often have higher daily liquidity, lower fees, and enhanced tax advantages compared to mutual funds. It’s important to note that leveraged and inverse ETF’s exist as well; leveraged ETF’s return a multiple of that of the underlying assets, while inverse ETF’s return the opposite of that of the underlying assets. Overall, the liquidity, versatility, and broad exposure ETF’s provide make them an attractive investment vehicle.