What is an ETF?

What are ETFs?

An Exchange Traded Fund (ETF) is a portfolio of securities, such as stocks or bonds, constructed to closely track the composition and performance of a market index, such as the S&P 500 or the Dow Jones Industrial Average.  ETFs trade like stocks and are continually priced throughout the day.

Features of Exchange Traded Funds

• Diversification:  ETFs provide exposure to a broad range of domestic and global capital market indices, making them an ideal vehicle for implementing an asset allocation strategy.

• Low Expenses:  ETFs generally have low internal expense ratios, helping to reduce the cost of managing a portfolio.

• Tracks an Index:  Nearly 90% of the actively managed funds have lagged behind the S&P 500 Index during the past 20 years.  (Source: Greg Salsbury, Ph.D., Exec. VP, Jackson National Life Distributors, Inc.)

  © 2007 Powershares Corporate Library

An investment in Exchange Traded Funds is subject to risk.  The value of an investment and the return on invested capital will fluctuate over time, and, when sold or redeemed, an investment may be worth less than its original cost.  ETFs will fluctuate with changes in market conditions and may not be suitable for all investors.  In many cases ETFs have lower expense ratios than comparable index funds.  However, since ETFs trade like stocks, they may be subject to brokerage fees and trading spreads.  ETFs do not   necessarily trade at the net asset values of their underlying holdings, meaning an ETF could potentially trade above or below the value of the underlying portfolio.

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