With the help our friends at ETF.com, we hope this page answers some of your questions about ETFs and ETF investing. By clicking the following links you will be leaving GreenHarvestAM.com and be directed to ETF.com.
The ETF industry continues to expand at a rapid rate, and keeping track of all the products and the firms behind those products is a daunting task. That’s why ETF.com and ETF Report have attempted to gather all of the relevant issuers and brands in one place for ETF users. This directory will be posted on ETF.com and updated regularly.
Welcome to ETF University. We’ve prepared a complete series of articles that walks you through the basics of ETFs, teaching you everything you need to know to get started with these powerful investment tools.
What is an ETF?
Offering low-cost access to virtually every corner of the market, ETFs allow investors big and small to build institutional-caliber portfolios with lower costs and better transparency than ever before. But what exactly is an ETF? And how does it provide these benefits?
Why Are ETFs So Tax Efficient?
Two of the great, underappreciated advantages of ETFs are their transparency and tax efficiency. Compared with mutual funds, ETFs are light years ahead in these two critical categories.
Why Are ETFs So Cheap?
The first thing people talk about when they talk about ETFs is their low fees. And it’s true: While the average U.S. equity mutual fund charges 1.42 percent in annual expenses, the average equity ETF charges just 0.53 percent. If you look at where the bulk of ETF money is actually invested, the average fee is an even-lower 0.40 percent.
And you can get lower—much lower—than that.
What Risks Are There in ETFs?
PLENTY. Sure, they’re cheaper than mutual funds. Sure, they’re more tax efficient than mutual funds. Sure, they’re transparent, well structured and generally well designed. But risks? There are dozens. But for the purposes of this article, let’s hit the big 10.
What is the Creation/Redemption Mechanism?
The key to understanding how ETFs work is the “creation/redemption” mechanism. It’s how ETFs gain exposure to the market, and is the “secret sauce” that allows ETFs to be less expensive, more transparent and more tax efficient than traditional mutual funds.
It’s a bit complicated, but worth understanding.
Understanding Tracking Difference And Tracking Error
How do you know if an ETF is doing its job well? Some might turn to last year’s performance, but performance isn’t the answer—markets go up and down regardless of how well an ETF does its job. The simplest answer is “tracking difference.” Tracking difference is investors’ metric for assessing whether they’re getting what they pay for. As such, it’s one of the most important ETF statistics to consider.
Understanding ETF Liquidity
For individual stocks, liquidity is about trading volume and its regularity—more is better. For ETFs, there’s more to consider. ETFs are often lauded for their liquidity and single-stock trading characteristics. Truth is, they are similar.
How Full Replication And Optimization Work
Investors want their index funds (or ETFs) to deliver exactly the return of the indexes they track. In a frictionless world, the way to do this would be obvious: Hold every security in the index, in exactly the same weight as the index.
Active vs. Passive
Passive investing. It sounds worse than boring. “Passive” sounds uninterested and maybe a bit lazy—two adjectives that are hardly desirable in an investing approach.
But passive investing powers what’s possibly the most vibrant and dynamic area of the financial world: ETFs. So what is a passive investment?