ETF’s (Exchange-Traded Fund)

Exchange Traded Funds and Exchange Traded Commodities/Currencies

An ETF, or exchange-traded fund, is a marketable security that tracks a stock index, a commodity, bonds, or a basket of assets. Although similar in many ways, ETFs differ from mutual funds because shares trade like common stock on an exchange. The price of an ETF’s shares will change throughout the day as they are bought and sold. The largest ETFs typically have higher average daily volume and lower fees than mutual fund shares which makes them an attractive alternative for individual investors.

While most ETFs track stock indexes, there are also ETFs that invest in commodity markets, currencies, bonds, and other asset classes. Many ETFs also have options available for investors to use income, speculation, or hedging strategies. An Introduction To Exchange-Traded Funds (ETFs) BREAKING DOWN Exchange-Traded Fund (ETF) An ETF is a type of fund that owns underlying assets (shares of stock, bonds, oil futures, gold bullion, foreign currency, etc.) and divides ownership of those assets into shares. Most ETFs are set up as an open-ended fund and (in the U.S.) are subject to the Investment Company Act of 1940 except where subsequent rules have modified their regulatory requirements.

Some ETFs are established as Unit Investment Trusts (UIT) which technically must have a date set in the future when the fund will end. In fact, the largest and oldest ETF (SPDR S&P 500 ETF) is one of the few ETFs set up as a UIT. However, because an ETF that is set up as a UIT can extend that date perpetually, they act very similarly to standard open-ended funds. A grantor-trust is sometimes considered a type of ETF but, because it conveys direct ownership of the fund’s assets to its shareholders, these are usually not considered a true ETF.

ETF shareholders are entitled to a proportion of the profits, such as earned interest or dividends paid, and they may get a residual value in case the fund is liquidated. An ETF is more tax efficient than a mutual fund. This is because most buying and selling occurs through an exchange and the ETF sponsor does not need to redeem shares each time an investor wishes to sell, or issue new shares each time an investor wishes to buy. Redeeming shares of a fund can trigger a tax liability so listing the shares on an exchange can keep tax costs lower. In the case of a mutual fund, each time an investor sells their shares they sell it back to the fund, and a tax liability can be created that must be paid by the shareholders of the fund.

The average expense ratio among mutual funds has been falling over the last two decades largely from pressure brought by low-cost ETFs. The average annual expense ratio for stock ETFs was .23% and .20% for bond ETFs in 2016. Some of the largest indexed ETFs have expense ratios near .10%. The average passively indexed stock mutual fund had an expense ratio of .59% in 2016. The lower costs of ETFs are one of the biggest reasons the market for these instruments has grown so quickly.

What are ETFs and ETCs?

Exchange Traded Funds (ETFs) are funds traded on a stock exchange. Most ETFs track the performance of a stock or bond index (such as the FTSE 100 or S&P 500).

Find out more

Exchange Traded Commodities/Currencies (ETCs) ollow the price of metals, oil, agricultural products or exchange rates.

Find out more

Open an account and start dealing

Lorem ipsum dolor sit amet, te eius prima tation sit, sea detracto albucius laboramus at. Tollit hendrerit vim at. Cum cibo justo et, ex eam esse ubique recteque. Pericula voluptatibus vix no. Ea vel probo persius. Vel posse soleat no, labore definiebas est ex. Nec malorum qualisque ne, detraxit temporibus ut cum. Lorem ipsum dolor sit amet, te eius prima tation sit, sea detracto albucius laboramus at. Tollit hendrerit vim at. Cum cibo justo et, ex eam esse ubique recteque. labore definiebas est ex. Nec malorum qualisque ne, detraxit temporibus ut cum.

Fund & Share dealing account

Cum cibo justo et, ex eam esse ubique recteque. Cum cibo justo ex eam esse ubique recteque ericula voluptatibus ipsum vix recteque.

  • Pericula voluptatibusno.
  • Cum cibo justo et,
  • Eex eam esse ubique recteque.
OPEN a Fund & Share dealing account
Stocks & Shares ISA

Cum cibo justo et, ex eam esse ubique recteque. Cum cibo justo ex eam esse ubique recteque ericula voluptatibus ipsum vix recteque.

  • Pericula voluptatibusno.
  • Cum cibo justo et,
  • Eex eam esse ubique recteque.
open a Stocks & Shares ISA

Pello Capital Limited offers investments and services to clients, which are primarily considered to be high risk investments. Some investments such as contracts for difference use leverage which can magnify gains but equally can magnify losses. Leveraged products may lose investors more than the amount they initially invested. This website is provided for information purposes only. It is not an offer to sell, or a solicitation of an offer to buy, any security, nor enter into any agreement or contract with Pello Capital Limited. All information provided is indicative and subject to market conditions and availability. Not all financial products are suitable for all investors. Before entering into any transaction you should ensure that you understand and have made an independent assessment of the suitability and appropriateness of the transaction into which you are entering and the nature and extent of your exposure to risk of loss in light of your own objectives, financial and operational resources and other relevant circumstances. You should take such independent investigations and such professional advice as you consider necessary or appropriate for such purpose. Past performance is no indicator of future success.


Pello Capital Limited, company number 5267797. Pello Capital Limited is authorised and regulated by the Financial Conduct Authority (FCA) with Financial Services register number 449720 and is a member of the London Stock Exchange (LSE) and Nex Exchange.