What is an ETF

1
What is an ETF?

• Rosabel Flax
• KCEE
• July 11 12, 2006

2
What is the meaning of Acronym?

• Exchange-Traded Fund

3
What is a typical ETF?

• Portfolios of stocks, bonds, or in some cases
  other investments that are trade on the stock
  exchange much the same as a regular stock does.

4
What is the history of ETFs?

• 1993--1st ETFSPDRstracked S P 500 index
• End of 1999--30 ETF funds with assets of 30B
• During 2005--On average one new ETF was launched
  every week
• By March 2006-- of ETFs up to 212 with assets of
  321B

5
How long does it take the SEC to approve a new
ETF?

• Takes about two years to approve new ETF vs. two
  months for new mutual fund

6
How does an ETF differ from amutual fund?

• Trades just like a stock of an individual company
• Not managed by human professionals
• Based on index designed to represent a sector
• Enables a broad diversification to portfolio

7
What kind of diversification may be possible?

• Major equity and fixed-income indices and their
  sub-sectors
• The performance of specific capitalization
  ranges, including large-, mid- and small-cap
  stocks
• Investment styles, such as growth stocks or value
  stocks
• Countries or entire regions, such as Asia, Europe
  and Latin America
• Individual industries, such as technology or
  healthcare
• Stocks sharing particular characteristics, such
  as dividend income

8
Examples of ETFs

• Spiders (Standard Poors Depositary Receipts
  SPY)
• 1) Mimics the SP 500
• 2) Allows exposure to 4/5 of U.S. market
  capitalization
• 3) Single stock about 125
• 4) End of April 2006, 53B invested in
• 5) Average of 9B shares trade every day

9

• SPDR (S P High Yield Dividend Aristocrats
  Index SDY)
• 1) Composed by finding the stock in the
• S P 1500 who have increased their
• dividends each year in the past 25 years,
• from this group the top 50 that have the
• highest dividend yield are put in the ETF.
  

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• 2) SDY collects dividends from the
• 50 stocks
• 3) Stockholders received
• dividends every quarter
• (currently 3.4)
• 4) Only five stocks of the 50 were
• replaced in the last year.

11
Conclusion

• ETFs allow one to
• Harness the power of a broad market
• Round out portfolio
• Emphasize an industry or sector
• Time the market
• Selling short and other fancy stuff
• Have an opportunity to improve your investing game

12
Definition
Facts
FRAYER MODEL
Word
Non-Examples
Examples
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Definition
Facts

• Trades like a stock
• May short sell
• Can buy or sell anytime
• No professional management
• Based on indexes
• Exchanged Traded Fund
• Allow easy way to have broad
• diversification

• Portfolios of stocks, bonds, or in some cases
  other investments that are trade on the stock
  exchange much the same as a regular stock does.

ETF
Non-Examples
Examples
Not a Mutual Fund Not a FDIC Saving Account
Spiders SPY
14
For more information

• http//finance.yahoo.com/etf