What are ETFs?

ETFs (exchange traded funds) are hard to define because they share characteristics with both individual stocks and with mutual funds. The advantages of ETFs are that they can be adapted to any type of strategy, which can be traded with minimum effort and cost. The ETF is traded just like a common stock, containing a collection of financial instruments (stocks, bonds, futures) inside it. The collection of different financial instruments trade as a single whole: this single whole is the ETF. In this way an investor can express a view on a given sector of the economy without actually analyzing individual companies to find the ones most appropriate.

Like mutual funds, ETFs charge investors a fee, on top of commissions charged by brokers for every buy or sale.

Buying, for example, an ETF tracking the S&P500 index the investor receives exposure to every stock in the index: each stock is weighted by its market cap relative to the market cap of the entire index.

An ETF tracking the stocks of Pacific Region solar panel manufacturers gives the investor a cost-efficient and easy way to express a position on the future of the sector without requiring extensive analysis of different companies.

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