Exchange Traded Funds (ETFs)

Exchange Traded Funds (ETFs) are index-based products. Each ETF holds a portfolio of securities that approximates the price and yield performance of its underlying benchmark index.

Basically, ETFs (also called "index shares") are index funds that are listed on an exchange and can be traded on an intraday basis. Investors can buy or sell ETF shares as a single security. Exchange traded funds combine the flexibility, ease, and liquidity of trading stocks with the benefits of investing in traditional index funds.

With index shares, you have a wide range of investment options:

• Access to an entire portfolio of stocks in a single transaction;
• Ability to buy on margin;
• Ability to sell ETFs short even on a down tick (i.e., when the last sale price is lower than the preceding sale price);
• May be purchased and sold throughout the trading day (unlike mutual funds, which are priced daily at 4 p.m.);
• Reduced costs for investor affordability;
• May purchase as few as one share;
• No high management and sponsor fees;
• Opportunity for dividend income;
• Ease and convenience of trading;
• Tax efficiencies;
• Instant exposure to a diversified portfolio of stocks;
• Perhaps the greatest benefit of index shares is that investors now have instant exposure to a diversified portfolio of stocks.

In recent years, these unique features and benefits have helped ETFs explode in popularity. They have become one of the most flexible, multi-purpose investment vehicle available, representing an entirely new investment category.

The following are the most active (liquid) ETFs:

• The Nasdaq-100 Index Tracking Stock (QQQ), commonly known as the "qubes" or "cubes". The cubes track the top 100 non-financial stocks of the NASDAQ;
• The Standard & Poor's Depositary Receipts (SPDR), commonly called "spiders," which track the stocks of the S&P 500;
• The "Diamonds" (DIA), which track the 30 stocks of the Dow Jones Industrial Average.