Exchange Traded Fund (ETF)
An Exchange Traded Fund (ETF) is a exchange traded fund that tracks an index, a commodity, bonds or a basket of assets like an index fund. Essentially, ETFs were developed to allow investors to hold large baskets of assets without the need or the cost of buying all the individual assets that make up the basket. For example, there are ETFs that track the major indices such as the Dow Jones Industrial Average or the S&P/TSX Index in Canada. Instead of building a portfolio of blue chip stocks, the investor need only to buy the ETF, which then tracks with the index. Buying the index often comes with lower fees than buying all the individual stocks or buying a mutual fund.
For the investor, buying an ETF is an attractive option if you are following a basic investment strategy. For example, many Canadians buy the S&P/TSX 60 (XIU) to hold a portfolio of large Canadian companies.