Exchange-traded fund

An exchange-traded fund, or ETF, is a registered investment company. Other forms of the registered investment company include mutual funds,   closed-end funds, and  unit investment trusts. Legally, an ETF is classified as an open end company or unit investment trust, but in the U.S. a number of other investment vehicles including exchange traded notes, HOLDERS, and certain partnerships are often grouped under the exchange traded fund banner. ETFs are like mutual funds in that they hold a collection of assets, usually stocks, bonds or other securities. Like closed-ended funds, ETFs trade on the market at a premium or discount from their net asset value (NAV). However, unlike closed-end funds, which often trade at large discounts or premiums to NAV, a special procedure for creating or redeeming shares allows institutional investors to perform arbitrage by swapping blocks of securities for ETF shares which generally makes the difference between price and NAV very small.

At year end 2009, ETF's in the U.S. totaled 771.1 billion dollar in net assets. For a comprehensive view of the ETF marketplace, refer to ETF Landscape:Industry Review from Blackrock November 2009.

Costs

 * Commission: the up-front charge by your broker to buy or sell a stock or ETF.
 * Bid/ask spread: the price difference between what a seller asks and what a buyer offers for a stock or ETF.
 * Premium and discount: the difference between the trading price and the NAV of an ETF.
 * Expense ratio: the annual management fee for a mutual fund or ETF expressed as a percentage. It is charged directly to the fund/ETF.

The American Stock Exchange web site lists the daily closing bid-ask and premium-discount information for many popular ETFs.

General information about ETFs

 * Fund Statistics
 * ETF Statistics (Sept 2009)


 * Exchange-Traded Funds
 * Jim McWhinney, An Inside Look At ETF Construction
 * Exchange-Traded Funds (ETF) Center
 * How ETFs work?
 * ETF Liquidity Myth Dispelled
 * A Guide to Exchange-Traded Funds

ETF vs. Mutual funds

 * Calculate and compare costs for Vanguard ETFs and mutual funds
 * Vanguard Plain Talk: How you can use exchange-traded funds
 * Compare Vanguard ETF's with traditional index mutual funds
 * Exchange-Traded Funds Not for Everyone Wilfred Dellva, FPA Journal, 2001 April Issue - Article 12
 * To ETF or Not to ETF by Rick Ferri
 * Will McClatchy and Jim Wiandt, "How ETFs Manage a Tax-Efficiency Edge over Traditional Mutual Funds"
 * William J. Bernstein, "The ETF vs. Open-End Index-Fund Shootout"

ETF vs. Vanguard ETF share class

 * An Exchange-Traded Fund Or A Conventional Fund —You Can’t Really Have it Both Ways Gary Gastineau, Journal of Indexes, First Quarter, 2001
 * The Anatomy of Tax Efficiency Gary Gastineau, Journal of Indexes, May-June, 2005

ETF Provider Links
The five largest ETF providers hold $544 billion of the $573 billion in total ETF assets under management. (06/30/08)[source:Indexuniverse.com]. Here are links to the five major ETF providers ETF websites:
 * BGI ishares
 * SSgA
 * Vanguard ETFs
 * Powershares
 * ProShares

A complete list of ETF providers can be found at ETF and Index Fund Managers.

Academic Papers

 * Ali, Paul Usman and Gold, Martin L.,The New Model Index Fund(undated). MFAS Investment Advisors Research Paper. Available at SSRN: http://ssrn.com/abstract=275593 or DOI: 10.2139/ssrn.10.2139/ssrn.275593
 * Birdthistle, William A., "The Fortunes & Foibles of Exchange-Traded Funds: A Positive Market Response to the Problems of Mutual Funds" . Deleware Journal of Corporate Law (DJCL), Vol. 33, No. 1, 2008 Available at SSRN: http://ssrn.com/abstract=1013614
 * Huang, Jennifer C. and Guedj, Ilan, "Are ETFs Replacing Index Mutual Funds?" (March 31, 2008). Available at SSRN: http://ssrn.com/abstract=1108728
 * Poterba, James M. and Shoven, John B., "Exchange Traded Funds: A New Investment Option for Taxable Investors" (January 2002). MIT Department of Economics Working Paper No. 02-07. Available at SSRN: http://ssrn.com/abstract=302889