In finance, the term ETF stands for exchange-traded fund. ETFs are listed on stock exchanges and can be traded like stocks, but their value also relates to the worth of a commodity, index, or group of assets like a mutual fund. The first ETFs appeared in the 1980s, but they did not become popular until later years. The oldest surviving ETF dates to 1993, and in 2011, more than 1,100 ETFs managed over $1 trillion in assets.
Though ETFs offer many investment advantages, including flexibility, strong long-term performance, and tax efficiency, they also have their weaknesses. Some nontraditional ETFs rely on derivatives and can be very risky investments. Others have specific goals that may not match up with an investor’s. Some ETFs may also be difficult to unload if the overall market begins a swift downturn.
About the Author:
Stephen Roussin possesses more than two decades of expertise in wealth and asset management, including direct experience overseeing ETFs at UBS. He presently serves as President of Campbell & Company.