Exchange Traded Fund

A fund that tracks an index, but can be traded like a stock. ETFs bundle together the securities that are members of an index and never track actively-managed mutual fund portfolios, not least because actively managed funds only disclose their holdings a few times a year. Investors can do just about anything with an ETF that they can do with a normal stock, such as short selling. Because ETFs are traded on stock exchanges, they can be bought and sold at any time during the day (unlike most mutual funds). Like unit trusts, ETFs are open ended, which means that new units can be issued in response to demand. The advantage of this is that they trade at a price which is close to the net asset value of the fund (i.e. the value of its investments) - something that cannot be said of investment trusts which are closed funds. But unlike unit trusts, ETFs do not usually have initial charges and their annual management charges are much lower (averaging 0.35%). Broking commission has to be paid, but some ETFs are exempt from Stamp Duty. The UK's first ETF was launched in.