The goal of this chapter is to provide an explanation of basic ETF concepts for readers who are not familiar with these products. The earlier chapters addressed broad trends that didn’t require a detailed knowledge of ETFs. However, this knowledge will be important to understanding the subsequent sections. Readers who are already familiar with ETFs may decide to skip this chapter.
Below are important characteristics of ETFs that investors should be aware of:
• Many ETFs (or more accurately, exchange-traded products, or ETPs) are not open-end mutual funds and have different legal structures.
• Most (but not all) ETFs track an index.
• They trade on an exchange.
• They have cost and tax-efficiency advantages over ...