What is an ETF?
An exchange-traded fund pools investor money to hold a portfolio of assets. Shares trade on an exchange throughout the day, while the fund's underlying holdings determine its net asset value.
Index and active ETFs
Many ETFs seek to track an index using published rules. Active ETFs give a manager more discretion. The label ETF describes the structure, not the quality, risk, or expected return of the strategy.
Costs to understand
The expense ratio is the fund's annual operating cost. Investors should also consider bid-ask spreads, commissions, taxes, and tracking difference between the fund and its benchmark.
Diversification and concentration
An ETF can hold hundreds of positions, but still be concentrated in a country, sector, currency, company, or investment style. Review the holdings and methodology before drawing conclusions.