Exchange Traded Funds and iShares

What are exchange traded funds (ETFs)? They are securities that track an index but trade like a stock on an exchange. As a result, their price changes throughout the day due to buying and selling.

And for the same reason, an ETF does not have its net asset value (NAV) calculated every day like a mutual fund does.

Advantages of ETFs include the diversification of an index fund as well as the ability to sell short. Also, the expense ratios for most ETFs are lower than those of the average mutual fund.

But you have to pay the same commission to your broker that you'd pay on any regular share order.

Well known ETFs include one of the most widely known ETFs, the SPDR (Spider), which tracks the S&P 500 index, and Barclays exchange traded funds.

iShares are ETFs that offer investors the ability to invest in global, regional and country indices, for example iShares Brazil, iShares Canada etcetra.

Sector exchange traded funds provide a means to gain exposure to particular industry groups in a diversified manner.

Each iShare represents a proportion of ownership in each stock that makes up an index. Their price closely tracks that of the basket of underlying stocks.

This means that iShares ETF do not trade at a discount to their net asset value (NAV) as often happens with listed investment companies (LICs).

Because iShares trade daily like common stock, iShares day trading is possible for the speculator.

iShares are a good way for the average investors to get the diversification of a large number of companies without having to buy each individual stock, and in that sense are similar to index funds.

They are flexible and cheap, unlike mutual funds. The amount you want to invest is up to you. And just like buying company shares, you pay brokerage.

Should value investors be concerned with iShares? I don't take any interest in them other than knowing what they are about.

Trying to place a value on an index, a basket of 50 or more companies, is a different proposition from valuing an individual stock!

Return from ETFs to Stock Mutual Funds