Steven Kim
As a supple tool for investment, the exchange traded fund (ETF) has enjoyed explosive growth since its debut on the stock market. To a lesser extent, the story is similar for the exchange traded note (ETN). The popularity of these vehicles stems from the ease of investing in a diversity of assets at low cost. An ETF is an investment pool whose shares are listed on a bourse. For this reason, the securities can be bought and sold just like any other stock by way of an equity account at a brokerage firm. From a historical stance, the traditional form of communal investing lies in the mutual fund: a commercial trust whose shares are offered for sale directly to the general public. In other words, an investor deals with the operator of the collective pool in procuring and unloading the units. By contrast, the shares of an ETF are traded amongst the actors within the stock market. This primer begins by profiling the exchange traded fund. One topic deals with the similarities and differences between an ETF and a mutual fund. Another issue involves the contrast between active and passive modes of investment in tending a portfolio of any kind. A third and related factor concerns the role of an index fund as a showcase of the passive approach to investment. A fourth dimension lies in the face-off between direct and indirect types of widgets for investing in a given market. The duality of schemes, also known as physical versus synthetic modes, is especially relevant to the realm of exchange traded pools. A fifth, and related, item on the menu is a type of synthetic product known as the exchange traded note. This security resembles an equity in that it is listed on a stock exchange but in fact represents a form of debt. At the dawn of the millennium, the ETF market has grown at a giddy rate. A happy outcome is a plethora of choices for the thoughtful investor bent on drumming up a robust portfolio. On a negative note, though, a disturbing trend lies in the profusion of shaky ve
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