View source for Exchange-traded fund

{{Short description|Investment fund traded on stock exchanges}}
{{Use mdy dates|date=November 2021}}
{{Globalize|date=May 2023}}
{{financial markets}}
An '''exchange-traded fund''' ('''ETF''') is a type of [[investment fund]] that is also an [[exchange-traded product]], i.e., it is traded on [[stock exchange]]s.<ref>{{Cite web |title=ETFs 101 |date=October 31, 2024 |url=https://www.fidelity.com/learning-center/investment-products/etf/what-are-etfs |publisher=[[Fidelity Investments]]}}</ref><ref>{{Cite web |title=Exchange-Traded Funds (ETFs) |url=https://www.sec.gov/fast-answers/answersetfhtm.html |publisher=[[U.S. Securities and Exchange Commission]]}}</ref><ref>{{Cite web |title=Add an ETF without breaking the bank |url=https://investor.vanguard.com/etf/ |publisher=[[The Vanguard Group]]}}</ref> ETFs own financial assets such as [[stock]]s, [[Bond (finance)|bond]]s, [[currencies]], [[debts]], [[futures contracts]], and/or [[commodities]] such as [[gold bar]]s. Many ETFs provide some level of [[Diversification (finance)|diversification]] compared to owning an individual stock.

An ETF divides ownership of itself into [[Share (finance)|shares]] that are held by shareholders. Depending on the country, the legal structure of an ETF can be a [[corporation]], [[Trust law|trust]], open-end management [[investment company]], or [[Unit investment trust|unit investment]] trust.<ref name="ConceptRelease">{{Cite web |date=November 8, 2001 |title=Actively Managed Exchange-Traded Funds - SEC Release No. IC-25258, 66 Fed. Reg. 57614 |url=https://www.sec.gov/rules/concept/ic-25258.htm |url-status=dead |archive-url=https://web.archive.org/web/20170503111329/https://www.sec.gov/rules/concept/ic-25258.htm |archive-date=May 3, 2017 |access-date=August 27, 2017}}</ref><ref>{{Cite web |date=July 30, 2014 |title=SPDR ETFs: Basics of Product Structure |url=https://www.sec.gov/Archives/edgar/data/1222333/000119312514287007/d766507dfwp.htm |url-status=live |archive-url=https://web.archive.org/web/20170220081539/https://www.sec.gov/Archives/edgar/data/1222333/000119312514287007/d766507dfwp.htm |archive-date=February 20, 2017 |publisher=[[State Street Global Advisors]]}}</ref> [[Shareholder]]s indirectly own the assets of the fund and are entitled to a share of the profits, such as [[interest]] or [[dividend]]s, and would be entitled to any residual value if the fund undergoes [[liquidation]]. They also receive annual reports. An ETF generally operates with an [[arbitrage]] mechanism designed to keep it trading close to its [[net asset value]], although deviations can occur.<ref name="proposedrule2">{{Cite web |date=March 18, 2008 |title=17 CFR Parts 239, 270, and 274 Exchange-Traded Funds; Proposed Rule |url=https://www.sec.gov/rules/proposed/2008/33-8901fr.pdf |url-status=dead |archive-url=https://web.archive.org/web/20170706090033/https://www.sec.gov/rules/proposed/2008/33-8901fr.pdf |archive-date=July 6, 2017 |access-date=August 27, 2017 |publisher=[[U.S. Securities and Exchange Commission]]}}</ref>

The largest ETFs, which passively track stock market indices, have annual [[expense ratio]]s as low as 0.03% of the amount invested, although specialty ETFs can have annual fees of 1% or more of the amount invested. These fees are paid to the ETF issuer out of dividends received from the underlying holdings or from the sale of assets.<ref>{{Cite web |date=January 15, 2021 |title=ETF Fees: How are They Deducted & How Much Do They Cost? |url=https://www.sofi.com/learn/content/etf-fees/ |publisher=[[SoFi]]}}</ref>

In the United States, there is $5.4 trillion invested in equity ETFs and $1.4 trillion invested in fixed-income ETFs. In Europe, there is $1.0 trillion invested in equity ETFs and $0.4 trillion invested in fixed-income ETFs. In Asia, there is $0.9 trillion invested in equity ETFs and $0.1 trillion invested in fixed-income ETFs. In the first quarter of 2023, trading in ETFs accounted for 32% of the total dollar volume of stock market trading in the US, 11% of trading volume in Europe, and 13% of trading volume in Asia.<ref>{{Cite web |title=Global ETF Market Facts |url=https://www.ishares.com/us/insights/global-etf-facts |publisher=[[BlackRock]]}}</ref>

In the US, the largest ETF issuers are [[BlackRock]] [[iShares]] with a 34% market share, [[The Vanguard Group|Vanguard]] with a 29% market share, [[State Street Global Advisors]] with a 14% market share, [[Invesco]] with a 5% market share, and [[Charles Schwab Corporation|Charles Schwab]] with a 4% market share.<ref>{{Cite web |title=Market share of largest providers of Exchange Traded Funds (ETFs) in the United States |url=https://www.statista.com/statistics/294411/market-share-etf-providers-in-the-us/ |publisher=[[Statista]]}}</ref>

ETFs are regulated by governmental bodies (such as the [[U.S. Securities and Exchange Commission|SEC]] and the [[Commodity Futures Trading Commission|CFTC]] in the United States) and are subject to securities laws (such as the [[Investment Company Act of 1940]] and the [[Securities Exchange Act of 1934]] in the United States).

[[Closed-end fund]]s are not considered to be ETFs; even though they are funds and are traded on an exchange they do not change the number of shares they have issued, unlike an ETF. [[Exchange-traded note]]s are debt instruments that are not exchange-traded funds.

==ETFs vs. mutual funds==
ETFs are similar in many ways to [[mutual funds]], except that ETFs are bought and sold from other owners throughout the day on stock exchanges, whereas mutual funds are bought and sold from the issuer based on their price at day's end. ETFs are also more transparent since their holdings are generally published online daily and, in the United States, are more tax efficient than mutual funds.<ref name=schwabvs>{{Cite web |title=ETFs vs. mutual funds |url=https://www.schwab.com/etfs/mutual-funds-vs-etfs |publisher=[[Charles Schwab Corporation]]}}</ref><ref>{{Cite web |title=Benefits of ETFs |date=September 19, 2024 |url=https://www.fidelity.com/learning-center/investment-products/etf/benefits-of-etfs |publisher=[[Fidelity Investments]]}}</ref><ref>{{Cite web |title=Benefits and considerations of ETFs |url=https://www.schwab.com/etfs/benefits |publisher=[[Charles Schwab Corporation]]}}</ref> Unlike mutual funds, ETFs trade on a [[stock exchange]], can be sold [[Short (finance)|short]], can be purchased using funds borrowed from a stockbroker ([[Margin (finance)|margin]]), and can be purchased and sold using [[Order (exchange)|limit orders]], with the buyer or seller aware of the price per share in advance.<ref>{{Cite news |last=Keller |first=Burton |date=August 5, 2019 |title=Are Active ETFs a Threat to Mutual Funds? |work=[[ALM (company)|ThinkAdvisor]] |url=https://www.thinkadvisor.com/2019/08/05/are-active-etfs-a-threat-to-mutual-funds/}}</ref><ref>{{Cite web |last=Boyte-White |first=Claire |date=March 5, 2020 |title=The Right Time to Change From Mutual Funds to ETFS |url=https://www.investopedia.com/articles/investing/020116/when-right-time-change-mutual-funds-etfs.asp |website=[[Investopedia]]}}</ref>

===Costs and fees===
Both ETFs and mutual funds charge annual [[expense ratio]]s that range from 0.02% of the investment value to upwards of 1% of the investment value. Mutual funds generally have higher annual fees since they have higher marketing, distribution and accounting expenses ([[Mutual fund fees and expenses#United States|12b-1 fees]]).<ref>{{Cite web |title=ETFs vs. mutual funds: Cost comparison |url=https://www.fidelity.com/learning-center/investment-products/etf/etfs-cost-comparison |publisher=[[Fidelity Investments]]}}</ref> ETFs are also generally cheaper to operate since, unlike [[mutual fund]]s, they do not have to buy and sell securities and maintain cash reserves to accommodate shareholder purchases and redemptions.<ref>{{Cite web |title=How ETFs Work |url=https://www.wisdomtree.com/-/media/us-media-files/documents/resource-library/etf-education/how-etfs-work.pdf | publisher=[[WisdomTree Investments]]}}</ref><ref>{{Cite news | url=https://www.entrepreneur.com/money-finance/etf-vs-mutual-funds-what-are-the-differences/443672 | title=ETF vs. Mutual Funds: What Are the Differences? | work=[[Entrepreneur (magazine)|Entrepreneur]] | date=January 26, 2023}}</ref><ref>{{Cite web | url=https://www.td.com/ca/en/investing/direct-investing/articles/etfs-vs-mutual-funds | title=ETFs vs. Mutual Funds: What's the difference? | work=[[TD Bank]]}}</ref><ref>{{Cite news | url=https://www.businessinsider.com/personal-finance/etf-vs-mutual-fund | title=ETFs and mutual funds can instantly diversify your portfolio, but they differ in how they're traded, managed and taxed | first1=Will | last1=Kenton | first2=Paul | last2=Kim | work=[[Business Insider]] | date=May 26, 2022}}</ref>

[[Stockbroker]]s may charge different commissions, if any, for the purchase and sale of ETFs and mutual funds. In addition, sales of ETFs in the United States are subject to transaction fees that the national securities exchanges must pay to the SEC under section 31 of the [[Securities Exchange Act of 1934]], which, as of February 2023, is $8 per $1 million in transaction proceeds.<ref>{{Cite web | url=https://www.finra.org/rules-guidance/notices/information-notice-021423 | title=New Rate for Fees Paid Under Section 31 of the Exchange Act | publisher=[[Financial Industry Regulatory Authority]] | date=February 14, 2023}}</ref> Many mutual funds can be bought commission-free from the issuer, although some charge front-end or back-end [[Mutual fund fees and expenses#Loads|load]]s, while ETFs do not have loads at all.<ref>{{Cite web |last=Iachini |first=Michael |date=January 28, 2020 |title=ETF vs. Mutual Fund: It Depends on Your Strategy |url=https://www.schwab.com/learn/story/etf-vs-mutual-fund-it-depends-on-your-strategy |website=[[Charles Schwab Corporation]]}}</ref>

===Taxation===
In the United States, ETFs can be more attractive tax-wise than mutual funds for transactions made in taxable accounts. However, there are no tax benefits to ETFs compared to mutual funds in the United Kingdom and Germany.<ref>{{Cite web |last=Lodge |first=Steve |date=April 16, 2010 |title=Are ETF dividends taxed differently? |url=https://www.ft.com/content/c348228a-4981-11df-9060-00144feab49a |archive-url=https://ghostarchive.org/archive/20221210/https://www.ft.com/content/c348228a-4981-11df-9060-00144feab49a |archive-date=December 10, 2022 |url-access=subscription |website=[[Financial Times]]}}</ref><ref>{{Cite web |title=Stocks and Shares ISA: A low cost and tax-efficient way to invest |url=https://www.vanguardinvestor.co.uk/investing-explained/stocks-shares-isa |publisher=[[The Vanguard Group]]}}</ref><ref>{{Cite web|url=https://horizon65.com/en/germany/retirement/investments/private-pension/|title=Ultimate Guide to Private Pension Plans in Germany|website=www.horizon65.com|date=March 16, 2023 |access-date=2023-03-16}}</ref>

In the US, whenever a mutual fund realizes a [[capital gain]] that is not balanced by a realized loss (i.e. when the fund sells appreciated shares to meet investor redemptions), its shareholders who hold the fund in taxable accounts often pay [[capital gains tax]]es on their share of the gain.<ref>{{Cite news |last=Wallace |first=Karen |date=December 5, 2019 |title=What You Need to Know About Capital Gains Distributions |work=[[Morningstar, Inc.]] |url=https://www.morningstar.com/articles/720873/what-you-need-to-know-about-capital-gains-distributions}}</ref><ref>{{Cite news |last=McGowan |first=Lee |date=July 7, 2020 |title=What Are Mutual Fund Capital Gains Distributions? |work=[[Dotdash]] |url=https://www.thebalance.com/mutual-fund-capital-gains-distributions-2466692}}</ref> However, ETF investors generally only realize capital gains when they sell their own shares for a gain.<ref>{{Cite web |last=Iachini |first=Michael |date=August 6, 2019 |title=ETFs and Taxes: What You Need to Know |url=https://www.schwab.com/resource-center/insights/content/etfs-and-taxes-what-you-need-to-know |website=[[Charles Schwab Corporation]]}}</ref>

ETFs offered by [[The Vanguard Group|Vanguard]] are actually a different share class of its mutual funds and do not stand on their own; however, they generally do not have any adverse tax issues.<ref>{{Cite news |last=Johnson |first=Ben |date=January 15, 2020 |title=Vanguard's Unique ETF Structure Presents Unique Tax Risks |work=[[Morningstar, Inc.]] |url=https://www.morningstar.com/articles/962031/vanguards-unique-etf-structure-presents-unique-tax-risks |authorlink=Benny Johnson (columnist)}}</ref><ref name="dodge">{{Cite news |last1=Mider |first1=Zachary R. |last2=Massa |first2=Annie |last3=Cannon |first3=Christopher |date=May 1, 2019 |title=Vanguard Patented a Way to Avoid Taxes on Mutual Funds |work=[[Bloomberg News]] |url=https://www.bloomberg.com/graphics/2019-vanguard-mutual-fund-tax-dodge/ |url-access=subscription |authorlink1=Zachary Mider}}</ref><ref>{{Cite web |year=1997 |title=System and method for supporting a new financial instrument for use in closed end funds |url=https://patents.google.com/patent/US5983204 |via=[[Google Patents]]}}</ref><ref>{{Cite news |last1=Johnson |first1=Ben |last2=Benz |first2=Christine |date=April 11, 2018 |title=Should You Worry About the Tax Efficiency of Vanguard ETFs? |work=[[Morningstar, Inc.]] |url=https://www.morningstar.com/articles/858483/should-you-worry-about-the-tax-efficiency-of-vanguard-etfs}}</ref>

===Trading===
ETFs can be bought and sold at current market prices at any time during the trading day, unlike [[mutual funds]], which can only be traded at the end of the trading day. Also unlike mutual funds, investors can execute the same types of trades that they can with a stock, such as [[limit order]]s, which allow investors to specify the price points at which they are willing to trade, [[stop-loss order]]s, [[margin buying]], [[hedge (finance)|hedging]] strategies, and there is no minimum investment requirement. ETFs can be traded frequently to hedge risk or implement [[market timing]] investment strategies, whereas many mutual funds have restrictions on frequent trading.<ref name=ConceptRelease/><ref>{{Cite book |last=Gastineau |first=Gary |url=https://books.google.com/books?id=CIYoyIrP6cIC |title=The Exchange-Traded Funds Manual |publisher=[[Wiley (publisher)|Wiley]] |year=2002 |isbn=978-0-471-21894-4 |page=227}}</ref>

[[Option (finance)|Options]], including [[put option]]s and [[call option]]s, can be written or purchased on most ETFs – which is not possible with mutual funds, allowing investors to implement strategies such as [[covered call]]s  on ETFs. There are also several ETFs that implement covered call strategies within the funds.<ref>{{Cite web |last=Nibley |first=Brian |date=March 5, 2021 |title=Pros and Cons of a Covered Call ETF—and When to Buy |url=https://www.sofi.com/learn/content/covered-call-etf/ |website=[[SoFi]]}}</ref><ref>{{Cite news |last=Heinzl |first=John |date=July 25, 2014 |title=Don't be tempted by covered call ETF yields |work=[[The Globe and Mail]] |url=https://www.theglobeandmail.com/globe-investor/investor-education/dont-be-tempted-by-covered-call-etf-yields/article19782362/}}</ref><ref>{{Cite news |date=July 23, 2021 |title=It's Looking Like a Fine Time to Consider Covered Call ETFs |work=[[Nasdaq]] |url=https://www.nasdaq.com/articles/its-looking-like-a-fine-time-to-consider-covered-call-etfs-2021-07-23}}</ref>

Many mutual funds must be held in an account at the issuing firm, while ETFs can be traded via any stockbroker. Some stockbrokers do not allow for automatic recurring investments or trading fractional shares of ETFs, while these are allowed by all mutual fund issuers.<ref name=schwabvs/>

The most popular ETFs such as those tracking the [[S&P 500]] trade tens of millions of shares per day and have strong [[market liquidity]], while there are many ETFs that do not trade very often, and thus might be difficult to sell compared to more liquid ETFs. The most active ETFs are ''very'' liquid, with high regular trading volume and tight [[bid-ask spread]]s (the gap between buyer and seller's prices), and the price thus fluctuates throughout the day. This is in contrast with mutual funds, where all purchases or sales on a given day are executed at the same price at the end of the trading day.

===Transparency===
Issuers are required by regulators to publish the composition of their portfolios on their websites daily, or quarterly in the case of active non-transparent ETFs.<ref>{{Cite press release |title=SEC Adopts New Rule to Modernize Regulation of Exchange-Traded Funds |date=September 26, 2019 |publisher=[[U.S. Securities and Exchange Commission]] |url=https://www.sec.gov/news/press-release/2019-190}}</ref><ref>{{Cite web |last=Peirce |first=Hester |author-link=Hester Peirce |date=May 21, 2019 |title=A Quarter Century of Exchange-Traded Fun! |url=https://www.sec.gov/news/speech/speech-peirce-052119 |publisher=[[U.S. Securities and Exchange Commission]]}}</ref><ref>{{Cite news |last=Riquier |first=Andrea |date=January 31, 2020 |title=What is a 'non-transparent' ETF, and why would anyone want to own one? |work=[[MarketWatch]] |url=https://www.marketwatch.com/story/get-ready-for-a-new-flavor-of-etf-non-transparent-2019-11-15}}</ref>

ETFs are priced continuously throughout the trading day and therefore have price transparency.<ref>{{Cite web |date=January 22, 2018 |title=ETF Education: How Transparent Are ETFs? |url=https://www.etf.com/sections/features-and-news/etf-education-how-transparent-are-etfs |publisher=ETF.com}}</ref>

==Categories of ETFs==
===Index ETFs===
'''Index ETFs''' - Most ETFs are [[index fund]]s: that is, they track the performance of an index generally by holding the same securities in the same proportions as a certain [[stock market index]], [[bond market index]] or other economic [[Index (economics)|index]]. Examples of large Index ETFs include the Vanguard Total Stock Market ETF ({{NYSE Arca|VTI}}), which tracks the CRSP U.S. Total Market Index, ETFs that track the [[S&P 500]], which are issued by [[The Vanguard Group]] ({{NYSE Arca|VOO|label=no}}), [[iShares]] ({{NYSE Arca|IVV|label=no}}), and [[State Street Corporation]] ({{NYSE Arca|SPY|label=no}}), ETFs that track the [[NASDAQ-100]] index ({{NASDAQ|QQQ}}), and the iShares Russell 2000 ETF ({{NYSE Arca|IWM|label=no}}), which tracks the [[Russell 2000 Index]], entirely composed of companies with small [[market capitalization]]s. Other funds track indices of a certain country or include only companies that are not based in the United States; for example, the Vanguard Total International Stock Index ETF ({{NYSE Arca|VXUS|label=no}}) tracks the MSCI All Country World ex USA Investable Market Index, the iShares MSCI EAFE Index ETF ({{NYSE Arca|EFA|label=no}}) tracks the [[MSCI EAFE]] Index, and the iShares MSCI Emerging Markets ETF ({{NYSE Arca|EEM|label=no}}) tracks the MSCI Emerging Markets index. Some ETFs track a specific type of company, such as the iShares Russell 1000 Growth ETF ({{NYSE Arca|IWF|label=no}}), which tracks the "growth" stocks in the [[Russell 1000 Index]]. [[State Street Corporation]] has issued ETFs that track the components of the [[S&P 500]] in each [[Industry (economics)|industry]]: for example, the Technology Select Sector SPDR Fund ({{NYSE Arca|XLK|label=no}}) tracks the components of the S&P 500 that are in the [[List of largest technology companies by revenue|technology industry]] and The Financial Select Sector SPDR Fund, which tracks the components of the S&P 500 that are in the [[financial industry]]. The iShares Select Dividend ETF replicates an index of high dividend paying stocks.<ref>{{Cite web |title=Banner Year of Dividend Growth Sends Cash to Dividend ETFs |url=https://finance.yahoo.com/news/banner-dividend-growth-sends-cash-180027919.html |url-status=live |archive-url=https://web.archive.org/web/20160305044937/http://finance.yahoo.com/news/banner-dividend-growth-sends-cash-180027919.html |archive-date=March 5, 2016 |website=[[Yahoo! Finance]] |date=January 7, 2015 }}</ref> Other indexes on which ETFs are based focus on specific niche areas, such as [[sustainable energy]] or [[environmental, social and corporate governance]].<ref>{{Cite web |title=Sector-Fund Investing |url=http://news.morningstar.com/classroom2/course.asp?docId=3000&page=1&CN=sample |url-status=live |archive-url=https://web.archive.org/web/20140201105151/http://news.morningstar.com/classroom2/course.asp?docId=3000&page=1&CN=sample |archive-date=February 1, 2014 |publisher=[[Morningstar, Inc.]] }}</ref> Most index ETFs invest 100% of their assets proportionately in the securities underlying an index, a manner of investing called '''replication'''. Some index ETFs such as the Vanguard Total Stock Market Index Fund, which tracks the performance of thousands of underlying securities, use '''representative sampling''', investing 80% to 95% of their assets in the securities of an underlying index and investing the remaining 5% to 20% of their assets in other holdings, such as futures, option and swap contracts, and securities not in the underlying index, that the fund's adviser believes will help the ETF to achieve its investment objective.<ref>{{Cite news |last=Burns |first=Scott |author-link=Scott Burns (newspaper columnist)|date=October 28, 2009 |title=Our Take on the Bond ETF Dilemma |work=[[Morningstar, Inc.]] |url=https://www.morningstar.com/articles/313360/article}}</ref><ref>{{Cite web |last=Fuller |first=Stacy L. |date=April 16, 2008 |title=The Evolution of Actively Managed Exchange-Traded Funds |url=https://files.klgates.com/files/publication/dfb92707-5609-4024-ae51-530023aa4d9f/presentation/publicationattachment/117d670f-f438-4bf7-a03e-55463d9dd047/fuller_article_041608.pdf |publisher=Review of Securities & Commodities Regulation}}</ref><ref>{{Cite web |title=Frequently Asked Questions About ETF Basics and Structure |date=April 10, 2023 |url=https://www.ici.org/faqs/faq/etfs/faqs_etfs |publisher=Investment Company Institute}}</ref><ref>{{Cite web |title=How Vanguard Index Funds Work |url=https://www.investopedia.com/articles/investing/111715/how-vanguard-index-funds-work.asp |publisher=[[Investopedia]]}}</ref>

'''Factor ETFs''' are index funds that use [[enhanced indexing]], which combines [[active management]] with passive management in an attempt to beat the returns of an index. Factor ETFs tend to have slightly higher [[expense ratio]]s and [[volatility (finance)|volatility]] than strictly passive index ETFs.<ref>{{Cite news |date=July 7, 2013 |title='Enhanced' Index ETFs That Are Outperforming the S&P 500 |work=ETFtrends.com |publisher=[[Yahoo! Finance]] |url=https://finance.yahoo.com/news/enhanced-index-etfs-outperforming-p-115723796.html}}</ref><ref>{{Cite web | url=https://institutional.fidelity.com/app/item/RD_13569_45080/factor-etfs.html | title=Fidelity ETFs | publisher=[[Fidelity Investments]]}}</ref><ref>{{Cite web | url=https://www.ishares.com/us/strategies/smart-beta-investing | title=iSHARES FACTOR ETFs | publisher=[[iShares]]}}</ref>

'''Synthetic ETFs''', which are common in Europe but rare in the United States, are a type of index ETF that does not own securities but tracks indexes using derivatives and swaps. They have raised concern due to lack of transparency in products and increasing complexity; conflicts of interest; and lack of regulatory compliance.<ref>{{Cite web |date=April 2011 |title=Potential financial stability issues arising from recent trends in Exchange-Traded Funds (ETFs) |url=https://www.fsb.org/2011/04/potential-financial-stability-issues-arising-from-recent-trends-in-exchange-traded-funds-etfs/ |publisher=Financial Stability Board}}</ref><ref name=gettingthere/><ref>{{Cite web |last=Ramaswamy |first=Srichander |date=April 2011 |title=Market structures and systemic risks of exchange-traded funds. Working paper 343 |url=https://www.bis.org/publ/work343.pdf |publisher=[[Bank for International Settlements]]}}</ref> A synthetic ETF has [[counterparty]] risk, because the counterparty is contractually obligated to match the return on the index. The deal is arranged with collateral posted by the swap counterparty, which arguably could be of dubious quality. These types of set-ups are not allowed under the European guidelines, [[Undertakings for Collective Investment in Transferable Securities Directive 2009]] (UCITS).<ref>{{Cite web | url=https://www.investopedia.com/terms/s/synthetic-etf.asp | title=Synthetic Exchange-Traded Fund: What it is, How it Works | work=[[Investopedia]] | date=August 23, 2022}}</ref><ref>{{Cite web |last1=Grill |first1=Michael |last2=Lambert |first2=Claudia |last3=Marquardt |first3=Philipp |last4=Watfe |first4=Gibran |last5=Weistroffer |first5=Christian |date=November 2018 |title=Counterparty and liquidity risks in exchange-traded funds |url=https://www.ecb.europa.eu/pub/financial-stability/fsr/special/html/ecb.fsrart201811_3.en.html |website=[[European Central Bank]]}}</ref> Counterparty risk is also present where the ETF engages in [[securities lending]] or total return swaps.<ref>{{Cite journal |last1=Hurlin |first1=Christophe |last2=Iseli |first2=Grégoire |last3=Perignon |first3=Christophe |last4=Yeung |first4=Stanley |date=July 6, 2014 |title=The Counterparty Risk Exposure of ETF Investors |journal=[[SSRN]] |ssrn=2462747}}</ref> The difference between the performance of an index fund and the index itself is called the  [[tracking error]]; this difference is usually negative, except during [[flash crash]]es and other periods of extreme market turbulence, for index funds that do not use full replication, and for indices that consist of illiquid assets such as [[high-yield debt]].<ref>{{Cite web |last1=Avellaneda |first1=Marco |last2=Zhang |first2=Stanley |date=April 13, 2011 |title=Path-Dependence of Leveraged ETF Returns |url=https://www.math.nyu.edu/faculty/avellane/SIAMLETFS.pdf.pdf |url-status=live |archive-url=https://web.archive.org/web/20130610011006/http://math.nyu.edu/faculty/avellane/SIAMLETFS.pdf.pdf |archive-date=June 10, 2013 |website=SIAM Journal of Financial Math |pages=586–603 }}</ref><ref>{{Cite book |last1=Guo |first1=Kevin |last2=Leung |first2=Tim |chapter=Understanding the Tracking Errors of Commodity Leveraged ETFs |year=2015 |title=Commodities, Energy and Environmental Finance |series=Fields Institute Communications |volume=74 |pages=39–63 |arxiv=1610.09404 |doi=10.1007/978-1-4939-2733-3_2 |isbn=978-1-4939-2732-6 |ssrn=2389411}}</ref><ref name=ConceptRelease/><ref>{{Cite news |last=Salisbury |first=Ian |date=November 21, 2008 |title=Some ETFs Fall Short on Pricing; Certain Trades Slip Below Value of Holdings |work=[[The Wall Street Journal]] |url=https://www.wsj.com/articles/SB122723379809546887 |url-access=subscription}}</ref><ref>{{Cite news |last=Salisbury |first=Ian |date=February 19, 2010 |title=ETFs Were Wider Off the Mark in 2009 |work=[[The Wall Street Journal]] |url=https://www.wsj.com/articles/SB10001424052748704269004575073850786749116 |url-access=subscription}}</ref>

===Actively managed ETFs===
'''Actively managed ETFs''' include [[active management]], whereby the manager executes a specific trading strategy instead of replicating the performance of a [[stock market index]]. The securities held by such funds are posted on their websites daily, or quarterly in the cases of active non-transparent ETFs. The ETFs may then be at risk from people who might engage in [[front running]] since the portfolio reports can reveal the manager's trading strategy. Some actively managed equity ETFs address this problem by trading only weekly or monthly.<ref>{{Cite news |last=Hoffman |first=David |date=April 21, 2008 |title=Active ETFs are, well, less active; Dynamics of trading translate into little active management |work=Investment News |url=https://www.investmentnews.com/active-etfs-are-well-less-active-14959 |url-status=dead |access-date=August 20, 2020 |archive-url=https://web.archive.org/web/20150109030208/http://www.investmentnews.com/article/20080421/REG/883984293 |archive-date=January 9, 2015}}</ref> The largest actively managed ETFs are the JPMorgan Equity Premium Income ETF ({{nyse|JEPI}}), which charges 0.35% in annual fees, JPMorgan Ultra-Short Income ETF ({{nyse|JPST}}), which charges 0.18% in annual fees, and the [[Pimco]] Enhanced Short Duration ETF ({{nyse|MINT}}), which charges 0.36% in annual fees.<ref>{{Cite news | url=https://www.bloomberg.com/news/articles/2023-04-25/jpmorgan-overthrows-jpmorgan-for-crown-of-largest-active-etf | title=JPMorgan Overthrows JPMorgan for Crown of Largest Actively Managed ET | first=Katherine | last=Greifeld | work=[[Bloomberg News]] | date=April 25, 2023 | url-access=limited}}</ref>

===Thematic ETFs===
'''Thematic ETFs''' are ETFs, including both Index ETFs and actively managed ETFs, that focus on a theme such as disruptive technologies, [[climate change]], shifting consumer behaviors, [[cloud computing]], [[robotics]], [[electric vehicle]]s, the [[gig economy]], [[e-commerce]], or [[clean energy]].<ref>{{Cite news |last=Liu | first=Evie | title=Thematic ETFs Invest in the Hottest Trends. How Not To Get Burned. | url=https://www.barrons.com/articles/thematic-etfs-invest-in-the-hottest-trends-how-not-to-get-burned-51596227959  | work=[[Barron's (newspaper)|Barron's]] | date=July 31, 2020 | url-access=subscription}}</ref><ref>{{Cite news | title=Where do thematic funds fit in a portfolio? |url=https://www.advisor.ca/news/etfs/where-do-thematic-funds-fit-in-a-portfolio/ | first=Melissa | last=Shin |website=Advisor's Edge | date=February 12, 2020}}</ref> Research reveals the subjective nature of defining thematic investments, such as AI-themed ETFs, often caused by opaque selection criteria, proposing a data-driven methodology using corporate disclosures to improve transparency.<ref>{{Cite journal |last=Ante |first=Lennart |last2=Saggu |first2=Aman |date=2025-03-01 |title=Quantifying a firm's AI engagement: Constructing objective, data-driven, AI stock indices using 10-K filings |url=https://linkinghub.elsevier.com/retrieve/pii/S0040162524007637 |journal=Technological Forecasting and Social Change |volume=212 |pages=123965 |doi=10.1016/j.techfore.2024.123965 |issn=0040-1625|arxiv=2501.01763 }}</ref> The SEC recently charged two investment advisors with "AI washing" for exaggerating their AI involvement to exploit market enthusiasm.<ref>{{Cite web |title=SEC.gov {{!}} SEC Charges Two Investment Advisers with Making False and Misleading Statements About Their Use of Artificial Intelligence |url=https://www.sec.gov/newsroom/press-releases/2024-36 |access-date=2025-01-23 |website=www.sec.gov}}</ref>

===Bond ETFs===
'''Bond ETFs''' are exchange-traded funds that invest in bonds.<ref>{{Cite web |last=Chen |first=James |date=May 13, 2020 |title=Bond ETF |url=https://www.investopedia.com/terms/b/bond-etf.asp |website=[[Investopedia]]}}</ref> Bond ETFs generally have much more [[market liquidity]] than individual bonds.<ref>{{Cite web |last=Norris |first=Emily |date=January 25, 2018 |title=Bond ETFs: A Viable Alternative |url=https://www.investopedia.com/investing/bond-etfs-viable-alternative/ |publisher=[[Investopedia]]}}</ref>

===Commodity ETFs===
'''Commodity ETFs''' invest in [[commodity|commodities]] such as precious metals, agricultural products, or hydrocarbons such as petroleum and are subject to different regulations than ETFs that own securities.<ref>{{Cite press release |title=CFTC Issues COVID-19 Customer Advisory on Commodity ETPs and Funds |date=May 22, 2020 |publisher=[[Commodity Futures Trading Commission]] |url=https://www.cftc.gov/PressRoom/PressReleases/8167-20}}</ref><ref name=proposedrule/> Commodity ETFs are generally structured as exchange-traded grantor trusts, which gives a direct interest in a fixed portfolio. [[SPDR Gold Shares]], a [[gold exchange-traded fund]], is a grantor trust, and each share represents ownership of one-tenth of an ounce of gold.<ref>{{Cite web |title=SPDR® GOLD TRUST 2016 Grantor Trust Tax Reporting Statement |url=https://www.spdrgoldshares.com/media/GLD/file/SPDR-Gold-Trust-Tax-Information-2016.pdf |publisher=[[SPDR Gold Shares]]}}</ref><ref>{{Cite news |last=Ferri |first=Rick |date=May 12, 2014 |title=Exchange-Traded Confusion |work=[[Forbes]] |url=https://www.forbes.com/sites/rickferri/2014/05/12/exchange-traded-confusion/}}</ref> Most commodity ETFs own the physical commodity. [[SPDR Gold Shares]] ({{NYSE Arca|GLD}}) owns over 40 million ounces of gold in trust,<ref>{{Cite web |title=Key information |url=https://www.spdrgoldshares.com/usa/key-information/ |publisher=[[SPDR Gold Shares]]}}</ref> [[iShares]] Silver Trust ({{NYSE Arca|SLV}}) owns 18,000 tons of silver,<ref>{{Cite web |title=iShares Silver Trust |url=https://www.ishares.com/us/products/239855/ishares-silver-trust-fund |publisher=[[iShares]]}}</ref> Aberdeen Standard Physical Palladium Shares ({{NYSE Arca|PALL}}) owns almost 200,000 ounces of [[palladium]],<ref>{{Cite web |title=Aberdeen Standard Physical Palladium Shares ETF and ETFS Physical Platinum |url=https://www.aberdeenstandard.com/en-us/us/investor/fund-details/aberdeen-standard-physical-palladium-shares-etf/share/us0032621023 |publisher=[[Standard Life Aberdeen]]}}</ref> and Aberdeen Standard Physical Platinum Shares ETF ({{NYSE Arca|PPLT}}) owns over 1.1&nbsp;million ounces of [[platinum]].<ref>{{Cite web |title=Aberdeen Standard Physical Platinum Shares ETF |url=https://www.aberdeenstandard.com/en-us/us/investor/fund-details/aberdeen-standard-physical-platinum-shares-etf/share/us0032601066 |publisher=[[Standard Life Aberdeen]]}}</ref> However, many ETFs such as the [[United States Oil Fund]] by [[United States Commodity Funds]] ({{NYSE Arca|USO}}) only own [[futures contract]]s,<ref>{{Cite web |title=Portfolio |url=https://www.uscfinvestments.com/holdings/uso |publisher=[[United States Oil Fund]]}}</ref> which may produce quite different results from owning the commodity. In these cases, the funds simply roll the [[delivery month]] of the contracts forward from month to month. This does give exposure to the commodity, but subjects the investor to risks involved in different prices along the '''term structure''', such as a high cost to roll.<ref>{{Cite news |last=Lauricella |first=Tom |date=November 2, 2009 |title=Gold Mutual Funds Vs. Gold ETFs: It Depends on the Goal |work=[[The Wall Street Journal]] |url=https://www.wsj.com/articles/SB10001424052748704107204574473662177737546 |url-status=live |url-access=subscription |archive-url=https://web.archive.org/web/20150109095005/http://www.wsj.com/articles/SB10001424052748704107204574473662177737546 |archive-date=January 9, 2015 }}</ref><ref>{{Cite news |last=Kay |first=Bradley |date=August 25, 2009 |title=The Future of Commodity ETFs |work=[[Morningstar, Inc.]] |url=https://www.morningstar.com/articles/305219/article |url-status=live |archive-url=https://web.archive.org/web/20110927184644/http://news.morningstar.com/articlenet/article.aspx?id=305219 |archive-date=September 27, 2011 }}</ref> They can also be index funds tracking commodity indices.

===Currency ETFs===
'''Currency ETFs''' enable investors to invest in or short any major currency or a basket of currencies. They are issued by [[Invesco]] and [[Deutsche Bank]] among others. Investors can profit from the [[foreign exchange spot]] change, while receiving local institutional interest rates, and a collateral yield.<ref>{{Cite web |last=Chen |first=James |date=November 7, 2019 |title=Currency ETF |url=https://www.investopedia.com/terms/c/currency-etf.asp |website=[[Investopedia]]}}</ref>

===Leveraged ETFs===
{{see also|Leverage (finance)}}
'''Leveraged ETFs''' (LETFs) and '''[[inverse exchange-traded fund|Inverse ETFs]]''', use investments in [[derivative (finance)|derivatives]] to seek a daily return that corresponds to a multiple of, or the inverse (opposite) of, the daily performance of an index.<ref name="first">{{Cite web |last=Spence |first=John |date=May 29, 2006 |title=ProFunds readies first leveraged ETFs - ETF Investing |url=https://www.marketwatch.com/story/profunds-readies-first-leveraged-etfs |website=[[MarketWatch]]}}</ref> For example, [[Direxion]] offers leveraged ETFs and [[inverse exchange-traded fund]]s that attempt to produce 3x the daily result of either investing in ({{NYSE Arca|SPXL}}) or [[Short (finance)|short]]ing ({{NYSE Arca|SPXS}}) the [[S&P 500]].<ref>{{Cite web |title=SPXL SPXS |url=https://www.direxion.com/product/daily-sp-500-bull-bear-3x-etfs |publisher=[[Direxion]]}}</ref><ref>{{Cite web |last=Chen |first=James |date=July 21, 2020 |title=Inverse ETF |url=https://www.investopedia.com/terms/i/inverse-etf.asp |website=[[Investopedia]]}}</ref><ref>{{Cite news |last=Reeves |first=Jeff |date=April 15, 2020 |title=10 Inverse ETFs to Buy |work=[[U.S. News & World Report]] |url=https://money.usnews.com/investing/funds/slideshows/inverse-etfs-to-buy}}</ref><ref>{{Cite web |title=Inverse ETFs |url=https://www.fidelity.com/learning-center/investment-products/etf/types-of-etfs-inverse-etfs |publisher=[[Fidelity Investments]]}}</ref><ref>{{Cite news |last=Kennedy |first=Mark |date=March 11, 2020 |title=What to Know Before Buying Inverse and Short ETFs |work=[[Dotdash]] |url=https://www.thebalance.com/six-questions-to-ask-about-inverse-etfs-1214927}}</ref> To achieve these results, the issuers use various [[financial engineering]] techniques, including [[equity swap]]s, [[derivative (finance)|derivatives]], [[futures contract]]s, and [[rebalancing]], and re-indexing.<ref name="hood">{{Cite web |last=Bojinov |first=Stoyan |date=April 24, 2015 |title=Leveraged ETF Rebalancing: An ETFdb.com Guide |url=https://etfdb.com/leveraged-etfs/under-the-hood-of-leveraged-etfs/ |website=ETFdb.com}}</ref>  The [[rebalancing]] and re-indexing of leveraged ETFs may have considerable costs when markets are volatile. Leveraged ETFs effectively increase exposure ahead of a losing session and decrease exposure ahead of a winning session.<ref name="hood" /><ref>{{Cite web |last=Maxey |first=Daisy |date=August 4, 2009 |title=Fidelity the Latest to Caution on ETFs |url=https://www.wsj.com/articles/SB124935280042503551 |url-access=subscription |url-status=live |archive-url=https://web.archive.org/web/20150307062546/http://www.wsj.com/articles/SB124935280042503551 |archive-date=March 7, 2015 |website=[[The Wall Street Journal]] }}</ref> This is called [[Volatility tax|volatility drag]] or [[volatility tax]]. The [[rebalancing]] problem is that the fund manager incurs trading losses because he needs to buy when the index goes up and sell when the index goes down in order to maintain a fixed leverage ratio.<ref>{{Cite web |last=Yates |first=Tristan |date=April 16, 2020 |title=Dissecting Leveraged ETF Returns |url=https://www.investopedia.com/articles/exchangetradedfunds/07/leveraged-etf.asp |website=[[Investopedia]]}}</ref><ref>{{Cite journal |last1=Leung |first1=Tim |last2=Sircar |first2=Ronnie |date=September 25, 2014 |title=Implied Volatility of Leveraged ETF Options |journal=Applied Mathematical Finance |volume=22 |issue=2 |pages=162–188 |doi=10.1080/1350486X.2014.975825 |ssrn=2164518 |s2cid=218146570}}</ref><ref>{{Cite news |last=Hunnicutt |first=Trevor |date=May 2, 2017 |title=U.S. SEC approves request to list quadruple-leveraged ETFs |work=[[Reuters]] |url=https://www.reuters.com/article/us-sec-etfs-idUSKBN17Z009?il=0}}</ref><ref>{{Cite news |date=May 16, 2017 |title=SEC reconsiders approval of quadruple leveraged ETF: sources |work=[[Reuters]] |url=https://www.reuters.com/article/us-sec-etfs/sec-reconsiders-approval-of-quadruple-leveraged-etf-wsj-idUSKCN18C2RO |url-status=live |archive-url=https://web.archive.org/web/20171212193439/https://www.reuters.com/article/us-sec-etfs/sec-reconsiders-approval-of-quadruple-leveraged-etf-wsj-idUSKCN18C2RO |archive-date=December 12, 2017 }}</ref><ref>{{Cite news |last1=Michaels |first1=Dave |last2=Dieterich |first2=Chris |date=May 16, 2017 |title=Quadruple-Levered ETF? SEC Hits Pause on Its Approval of an Exotic Investment |work=[[The Wall Street Journal]] |url=https://www.wsj.com/articles/sec-reconsidering-staff-approval-of-first-quadruple-leveraged-etf-1494970106 |url-access=subscription}}</ref> Leverage possesses a dual nature, as it has the potential to result in substantial profits, yet it also carries the risk of substantial losses.<ref>{{Cite web|last1=CHEN|first1=JAMES|date= December 19, 2023 |title=Leveraged ETFs: The Potential for Bigger Gains—and Bigger Losses |url=https://www.investopedia.com/terms/l/leveraged-etf.asp}}</ref>

===Cryptocurrency ETFs===
'''Cryptocurrency ETFs''' invest in cryptocurrencies such as [[Bitcoin]], [[Ethereum]], or a basket of different cryptocurrencies. There are two types of crypto ETFs. Spot crypto ETFs invest directly in cryptocurrencies, tracking their real-time prices, and their share prices will fluctuate with the prices of the cryptocurrencies they hold. On the other hand, future-based crypto ETFs refer to equities that do not invest directly in cryptocurrencies but rather in crypto [[futures contracts]]. These contracts are agreements to buy or sell cryptocurrencies at a predetermined price in the future. As a result, the share prices and price fluctuating trends of funds in these two types could be different, even though they hold identical cryptocurrencies and amounts.<ref>{{Cite web |date=December 4, 2023 |title=What To Expect From Bitcoin and Crypto Markets In 2024 |url=https://www.investopedia.com/what-to-expect-from-bitcoin-and-crypto-markets-in-2024-8404514 |website=[[Investopedia]]}}</ref><ref>{{Cite web |date=November 30, 2023 |title=How Investors Can Leverage The Introduction Of Crypto ETFs |url=https://www.benzinga.com/markets/cryptocurrency/23/11/36031837/how-investors-can-leverage-the-introduction-of-crypto-etfs |website=Benzinga}}</ref> Buffer funds allow investors to invest in cryptocurrency while offering downside protection in exchange for capped upside or a portion of gains.<ref>{{Cite web |last=Pound |first=Jesse |date=2025-02-07 |title=The race for the next big crypto ETF is on. Here’s what investors should know |url=https://www.cnbc.com/2025/02/07/the-race-for-the-next-big-crypto-etf-is-on-what-investors-should-know.html |access-date=2025-02-09 |website=CNBC |language=en}}</ref> ETFs offering exposure to [[Meme coin|meme coins]] like [[Dogecoin]] and [[$Trump]] are in development for launch in 2025.<ref>{{Cite web |last=Pitcher |first=Jack |title=Want to Double Your Exposure to the Trump Meme Coin? There’s an ETF in the Works for That. |url=https://www.wsj.com/finance/regulation/trump-meme-coin-etf-b2c22877 |access-date=2025-02-09 |website=WSJ |language=en-US}}</ref>

==Arbitrage mechanism==
ETF shares are created and redeemed when large [[broker-dealer]]s called '''authorized participants''' (AP) act as [[market maker]]s and purchase and redeem ETF shares directly from the ETF issuer in large blocks, generally 50,000 shares, called '''creation units'''. Purchases and redemptions of the creation units are generally [[in kind]], with the AP contributing or receiving [[Security (finance)|securities]] of the same type and proportion held by the ETF; the lists of ETF holdings are published online.<ref name=proposedrule/>

The ability to purchase and redeem creation units gives ETFs an [[arbitrage]] mechanism intended to minimize the potential deviation between the market price and the [[net asset value]] of ETF shares. APs provide [[market liquidity]] for the ETF shares and help ensure that their intraday market price approximates the [[net asset value]] of the underlying assets.<ref name=proposedrule/> Other investors, such as individuals using a retail broker, trade ETF shares on the [[secondary market]].

If there is strong investor demand for an ETF, its share price will temporarily rise above its net asset value per share, giving arbitrageurs an incentive to purchase additional creation units from the ETF issuer and sell the component ETF shares in the open market. The additional supply of ETF shares reduces the market price per share, generally eliminating the [[wikt:premium|premium]] over net asset value. A similar process applies when there is weak demand for an ETF: its shares trade at a discount from their net asset value.

When new shares of an ETF are created due to increased demand, this is referred to as "'''ETF inflows'''". When ETF shares are converted into the component securities, this is referred to as "'''ETF outflows'''".<ref>{{Cite web |date=March 2017 |title=A Primer on ETF Primary Trading and the Role of Authorized Participants |url=https://www.blackrock.com/corporate/literature/whitepaper/viewpoint-etf-primary-trading-role-of-authorized-participants-march-2017.pdf |website=[[BlackRock]]}}</ref>

ETFs are dependent on the efficacy of the arbitrage mechanism in order for their share price to track net asset value.

==History==
ETFs had their genesis in 1989 with Index Participation Shares (IPS), an [[S&P 500]] proxy that traded on the [[American Stock Exchange]] and the [[Philadelphia Stock Exchange]]. This product was short-lived after a lawsuit by the [[Chicago Mercantile Exchange]] was successful in stopping sales in the United States.<ref name="etfmanual">{{Cite book |last=Gastineau |first=Gary |url=https://books.google.com/books?id=CIYoyIrP6cIC&pg=PA32 |title=The Exchange-Traded Funds Manual |publisher=[[Wiley (publisher)|Wiley]] |year=2002 |isbn=978-0-471-21894-4 |page=32}}</ref><ref>{{Cite news |last=Berman |first=David |date=February 19, 2017 |title=The Canadian investment idea that busted a mutual-fund monopoly |work=[[The Globe and Mail]] |url=https://www.theglobeandmail.com/news/national/canada-150/how-a-canadian-etf-that-toppled-the-mutual-fund-monoply/article34086222/}}</ref><ref>{{Cite news |last=Coumarianos |first=John |date=February 3, 2020 |title=ETFs Not Reflecting Net Asset Value is a Feature, Not a Bug |work=[[Barron's (newspaper)|Barron's]] |url=https://www.barrons.com/articles/etfs-not-reflecting-net-asset-value-is-a-feature-not-a-bug-51580733000}}</ref> The argument against the IPS approach was that it resembled a futures contract because the investments held an index, rather than holding the actual underlying stocks.<ref>{{cite web |last1=Eichenwald |first1=Kurt |authorlink=Kurt Eichenwald|title=Index-Participation Appeal Declined |url=https://www.nytimes.com/1989/10/26/business/index-participation-appeal-declined.html |website=The New York Times |access-date=8 May 2022 |date=26 Oct 1989}}</ref>

In 1990, a similar product, Toronto Index Participation Shares, which tracked the TSE 35 and later the TSE 100 indices, started trading on the [[Toronto Stock Exchange]] (TSE) in 1990. The popularity of these products led the [[American Stock Exchange]] to try to develop something that would satisfy regulations by the [[U.S. Securities and Exchange Commission]].<ref>{{Cite web |last=McFeat |first=Tom |date=December 29, 2010 <!--"Last Updated: January 19, 2010“--> |title=The rise of the ETF |url=https://www.cbc.ca/news/business/taxes/the-rise-of-the-etf-1.792278 |access-date=January 31, 2020 |website=CBC News}}</ref>

Nathan Most and Steven Bloom, under the direction of Ivers Riley, and with the assistance of Kathleen Moriarty,<ref>{{Cite web |title=Kathleen Moriarty, ETF Industry's 'SPDR Woman,' Dies at 69 |url=https://www.msn.com/en-us/money/markets/kathleen-moriarty-etf-pioneer-known-as-spdr-woman-dies-at-69/ar-AA15vbm5 |first=Katie |last=Greifeld |publisher=Bloomberg News|date=2022-12-20 |website=MSN |language=en-US}}</ref> designed and developed [[Standard & Poor's Depositary Receipts]] ({{NYSE Arca|SPY}}), which were introduced in January 1993.<ref>{{Cite book |last=Carrel |first=Lawrence |url=https://books.google.com/books?id=PfWADwAAQBAJ |title=ETFs for the Long Run |date=September 9, 2008 |publisher=[[Wiley (publisher)|Wiley]] |isbn=9780470138946}} {{ISBN|978-0-470-13894-6}}</ref><ref>{{Cite news |last=Bayot |first=Jennifer |date=December 10, 2004 |title=Nathan Most Is Dead at 90; Investment Fund Innovator |work=[[The New York Times]] |url=https://www.nytimes.com/2004/12/10/obituaries/10most.html |url-status=live |url-access=subscription |archive-url=https://web.archive.org/web/20121105052943/http://www.nytimes.com/2004/12/10/obituaries/10most.html |archive-date=November 5, 2012 }}</ref><ref>{{cite web |title=S&P Depositary Receipts Start Trading on Amex / BRIEFCASE / The International Herald Tribune |url=https://www.nytimes.com/1993/01/30/your-money/IHT-briefcase-91342149470.html |website=The New York Times |access-date=8 May 2022 |date=30 Jan 1993}}</ref> Known as SPDRs or "Spiders", the fund became the largest ETF in the world. In May 1995, [[State Street Global Advisors]] introduced the [[S&P 400]] MidCap SPDRs ({{NYSE Arca|MDY}}).

It is a frequent topic in the financial press that ETFs have a quick growth.  These popular funds, with assets more than doubling each year since 1995 (as of 2001), have been warmly embraced by most advocates of low–cost [[index fund]]s.  [[The Vanguard Group|Vanguard]] is the leading advocate of [[index fund]]s.<ref>{{Cite journal |last=Gastineau |first=Gary L. |date=2001-04-30 |title=Exchange-Traded Funds: An Introduction |url=https://jpm.pm-research.com/content/27/3/88 |journal=The Journal of Portfolio Management |language=en |volume=27 |issue=3 |pages=88–96 |doi=10.3905/jpm.2001.319804 |s2cid=260586913 |issn=0095-4918|url-access=subscription }}</ref>

[[Barclays]], in conjunction with [[MSCI]] and Funds Distributor Inc., entered the market in 1996 with World Equity Benchmark Shares (WEBS), which became [[iShares]] MSCI Index Fund Shares. WEBS originally tracked 17 [[MSCI]] country indices managed by the funds' index provider, [[Morgan Stanley]]. WEBS were particularly innovative because they gave casual investors easy access to foreign markets. While SPDRs were organized as [[unit investment trust]]s, WEBS were set up as a [[mutual fund]], the first of their kind.<ref>{{Cite book |last1=Wiandt |first1=Jim |url=https://archive.org/details/exchangetradedfu0000wian/page/82 |title=Exchange Traded Funds |last2=McClatchy |first2=William |publisher=[[Wiley (publisher)|Wiley]] |year=2002 |isbn=0-471-22513-4 |page=[https://archive.org/details/exchangetradedfu0000wian/page/82 82] |url-access=registration}}</ref><ref>{{Cite book |last=Fabozzi |first=Frank |url=https://books.google.com/books?id=F1hk6UFlsUsC |title=The Handbook of Financial Instruments |publisher=[[Wiley (publisher)|Wiley]] |year=2003 |isbn=0-471-22092-2 |page=532}}</ref>

In 1998, [[State Street Global Advisors]] introduced "Sector [[SPDR|Spiders]]", separate ETFs for each of the sectors of the [[S&P 500]].<ref>{{Cite web |last=Burke |first=John |date=October 19, 2018 |title=How State Street Could Reclaim the ETF Throne |url=https://www.investopedia.com/articles/etfs-mutual-funds/052516/how-state-street-could-reclaim-etf-throne-spy-stt.asp}}</ref> Also in 1998, the "Dow Diamonds" ({{NYSE Arca|DIA}}) were introduced, tracking the [[Dow Jones Industrial Average]]. In 1999, the influential "cubes" was launched, with the goal of replicate the price movement of the [[NASDAQ-100]] – originally ''QQQQ'' but later {{NASDAQ|QQQ}}.

The [[iShares]] line was launched in early 2000. By 2005, it had a 44% market share of ETF [[assets under management]].<ref>{{Cite news |last=Moore |first=Rebecca |date=June 7, 2006 |title=ETFs Show Increasing Popularity in First Half of 2005 |work=PlanSponsor |url=https://www.plansponsor.com/etfs-show-increasing-popularity-in-first-half-of-2005/}}</ref> Barclays Global Investors was sold to [[BlackRock]] in 2009.

In 2001, [[The Vanguard Group]] entered the market by launching the Vanguard Total Stock Market ETF ({{NYSE Arca|VTI}}), which owns every publicly traded stock in the United States.<ref>{{Cite web |title=Vanguard Total Stock Market ETF (VTI) |url=https://investor.vanguard.com/etf/profile/performance/vti |publisher=[[The Vanguard Group]]}}</ref> Some of Vanguard's ETFs are a share class of an existing mutual fund.

iShares issued the first bond funds in July 2002: iShares IBoxx $ Invest Grade Corp Bond Fund ({{NYSE Arca|LQD}}), which owns [[corporate bond]]s, and a [[United States Treasury security#TIPS|TIPS fund]].<ref>{{Cite web |title=iShares Bond Funds |url=https://www.sec.gov/Archives/edgar/data/1100663/000119312505206890/d497.htm |publisher=[[U.S. Securities and Exchange Commission]]}}</ref> In 2007, iShares introduced an ETF that owns [[high-yield debt]] and an ETF that owns [[municipal bond]]s and [[State Street Global Advisors]] and [[The Vanguard Group]] also issued bond ETFs.

In December 2005, Rydex (now [[Invesco]]) launched the first currency ETF, the Euro Currency Trust ({{NYSE Arca|FXE}}), which tracked the value of the [[Euro]].<ref>{{Cite news |last=Spence |first=John |date=June 8, 2005 |title=First currency ETF filed |work=[[MarketWatch]] |url=https://www.marketwatch.com/story/rydex-files-first-currency-etf-based-on-euro}}</ref><ref>{{Cite news |last=Martin |first=Neil A. |date=July 7, 2008 |title=Putting the World at Your Fingertips |work=[[The Wall Street Journal]] |url=https://www.wsj.com/articles/SB121513946991328491 |url-access=subscription}}</ref> In 2007, [[Deutsche Bank]]'s db x-trackers launched the EONIA Total Return Index ETF in Frankfurt tracking the [[Euro]]. In 2008, it launched the Sterling Money Market ETF ({{lse2|XGBP}}) and US Dollar Money Market ETF ({{lse2|XUSD}}) in London. In November 2009, [[ETF Securities]] launched the world's largest FX platform tracking the MSFX<sup>SM</sup> Index covering 18 long or short USD ETC vs. single G10 currencies.<ref>{{Cite news |last=Kaminska |first=Izabella |date=November 13, 2009 |title=Introducing collateralised currency securities (updated) |work=[[Financial Times]] |url=https://ftalphaville.ft.com/2009/11/13/81396/introducing-collateralised-currency-securities/}}</ref>

The first leveraged ETF was issued by [[ProShares]] in 2006.<ref name=first/>

In 2008, the SEC authorized the creation of ETFs that use [[active management]] strategies.<ref name="proposedrule">{{Cite web |date=March 18, 2008 |title=17 CFR Parts 239, 270, and 274 Exchange-Traded Funds; Proposed Rule |url=https://www.sec.gov/rules/proposed/2008/33-8901fr.pdf |url-status=dead |archive-url=https://web.archive.org/web/20170706090033/https://www.sec.gov/rules/proposed/2008/33-8901fr.pdf |archive-date=July 6, 2017 |access-date=August 27, 2017 |publisher=[[U.S. Securities and Exchange Commission]]}}</ref> [[Bear Stearns]] launched the first actively managed ETF, the Current Yield ETF ({{NYSE Arca|YYY}}), which began trading on the [[American Stock Exchange]] on March 25, 2008.<ref>{{Cite press release |title=Bear Stearns Announces the Launch of the First Actively Managed Exchange Traded Fund |date=March 10, 2008 |publisher=[[Business Wire]] |url=https://www.businesswire.com/news/home/20080310005730/en/Bear-Stearns-Announces-Launch-Actively-Managed-Exchange}}</ref><ref>{{Cite press release |title=Bear Stearns Announces the Start of Trading of the First Actively Managed Exchange Traded Fund |date=March 25, 2008 |publisher=[[PR Newswire]] |url=https://www.businesswire.com/news/home/20080325005835/en/Bear-Stearns-Announces-Start-Trading-Actively-Managed}}</ref><ref>{{Cite news |last=Jaffe |first=Chuck |date=April 27, 2008 |title=Bear Stearns Current Yield (YYY) |work=[[The Seattle Times]] |url=https://www.seattletimes.com/business/bear-stearns-current-yield-yyy/ |url-access=subscription}}</ref>

In December 2014, [[assets under management]] by U.S. ETFs reached $2&nbsp;trillion.<ref>{{Cite news |last=Weinberg |first=Ari I. |date=January 5, 2015 |title=Another Milestone-Leaping Year for ETFs |work=[[The Wall Street Journal]] |url=https://www.wsj.com/articles/another-milestone-leaping-year-for-etfs-1420516893 |url-access=subscription}}</ref> By November 2019, assets under management by U.S. ETFs reached $4&nbsp;trillion.<ref name="early">{{Cite news |last=Gurdus |first=Lizzy |date=November 9, 2019 |title=ETF assets rise to record $4&nbsp;trillion and top industry expert says it's still 'early days' |work=[[CNBC]] |url=https://www.cnbc.com/2019/11/09/etf-assets-rise-to-a-record-4-trillion-and-its-still-early-days.html}}</ref><ref>{{Cite news |last=Horch |first=AJ |date=May 29, 2020 |title=Here's why investors started pouring trillions into exchange-traded funds |work=[[CNBC]] |url=https://www.cnbc.com/2020/05/29/why-investors-are-pouring-trillions-into-exchange-traded-funds.html}}</ref><ref>{{Cite news |last1=Greifeld |first1=Katherine |last2=Ballentine |first2=Claire |date=June 17, 2020 |title=Crisis Lessons Drowned Out as $4 Trillion ETF Market Booms |work=[[Bloomberg News]] |url=https://www.bloomberg.com/news/articles/2020-06-17/lessons-from-the-brink-how-4-trillion-of-etfs-bounced-back |url-access=subscription}}</ref> Assets under management by U.S. ETFs grew to $5.5&nbsp;trillion by January 2021.<ref>{{Cite news |last=Rekenthaler |first=John |date=January 21, 2021 |title=Farewell, Mutual Funds |work=[[Morningstar, Inc.]] |url=https://www.morningstar.com/articles/1018487/farewell-mutual-funds}}</ref>

In August 2023, a three-judge US court panel for the [[District of Columbia Court of Appeals]] in Washington overruled an SEC decision denying Grayscale Investments permission to launch a bitcoin-focused ETF. The court's decision sets the path for a first bitcoin exchange-traded fund in the US.<ref>{{Cite web |last=Morrow |first=Allison |date=2023-08-29 |title=Crypto assets soar as US court clears a path for bitcoin ETFs {{!}} CNN Business |url=https://www.cnn.com/2023/08/29/investing/bitcoin-etf-grayscale-crypto/index.html |access-date=2023-08-29 |website=CNN |language=en}}</ref><ref>{{Cite news |last=Lang |first=Hannah |date=2023-08-29 |title=US court says SEC wrong to deny Grayscale's spot bitcoin ETF proposal |language=en |work=Reuters |url=https://www.reuters.com/legal/us-court-says-sec-wrong-deny-grayscales-spot-bitcoin-etf-proposal-2023-08-29/ |access-date=2023-08-29}}</ref>

In October 2023, ProShares, [[VanEck]] and Bitwise Asset Management launched the first ETFs tied to the value of [[Ethereum]].<ref>[https://finance.yahoo.com/news/vaneck-launches-etf-tied-ether-122445239.html VanEck, ProShares, Bitwise launch ETFs tied to ether futures] | [[Yahoo! Finance]]</ref>

Earlier that year. in June, the asset management company [[BlackRock]] filed an application with the [[U.S. Securities and Exchange Commission]] (SEC) to launch the first spot [[bitcoin]] ETF, with [[Coinbase]] as a [[crypto custodian]]. In January 2024, the SEC approved the creation and trading of 11 spot bitcoin ETFs.<ref>{{Cite web |last=Brewster |first=Lucy |date=January 10, 2024 |title=Spot Bitcoin ETF Wins Approval Amid SEC Tech Glitches |url=https://www.etf.com/sections/news/spot-bitcoin-etf-wins-sec-approval |access-date=February 21, 2024 |website=etf.com}}</ref><ref>{{Cite web |title=Spot Bitcoin ETFs Are Approved by SEC, Cleared To Start Trading Thursday |url=https://www.investopedia.com/spot-bitcoin-etfs-are-approved-by-sec-cleared-to-start-trading-thursday-8357670 |access-date=2024-02-21 |website=Investopedia |language=en}}</ref> By May 2024, BlackRock’s ETF had amassed $10bn in assets.<ref>{{Cite news |last=Schmitt |first=Will |date=2024-04-29 |title=Vomiting frogs and other 'dust' prove vexing for US bitcoin ETFs |url=https://www.ft.com/content/657233b0-c9d3-4d4d-a1ab-d4417d14c61e |access-date=2024-05-14 |work=Financial Times}}</ref> It also emerged that ETF issuers had come into ownership of [[Non-fungible token|NFTs]] and other tokens – known as “dust” – as part of their bitcoin holdings. BlackRock alone was said to have $20,000 worth of non-bitcoin tokens. However, the firms could not sell or pass on such dust because that could imperil an ETF’s legal status and force investors to file complex tax paperwork. Blackrock’s policy was to hold unexpected virtual assets in a separate wallet where they could stay in perpetuity or be donated to charity.<ref>{{Cite news |last=Heistruvers |first=Sandra |date=2022-02-18 |title=Fidelity launches physical bitcoin ETP in Europe |url=https://www.ft.com/content/f33cb6b3-964e-43ab-bc40-727f82c0f4ba |access-date=2024-06-09 |work=Financial Times}}</ref>

In November 2023, BlackRock and [[Fidelity Investments]] filed applications with the SEC to launch the first spot [[Ethereum]] ETFs.<ref>[https://www.benzinga.com/markets/cryptocurrency/23/11/36031980/preparing-for-the-first-spot-bitcoin-etf-a-guide-for-investors Preparing For The First Spot Bitcoin ETF - A Guide For Investors] | Benzinga</ref> These were allowed the following May, though the SEC set the condition that the funds were not allowed to claim rewards on their coins from the [[Proof of stake#Legal status in US|proof-of-stake]] process.<ref>{{Cite news |title=Cryptofinance: into the ether |url=https://www.ft.com/content/2c447b68-1949-484b-bcb8-c2f004188522 |access-date=2024-07-09 |newspaper=Financial Times|date=May 24, 2024 }}</ref> However, not staking tokens meant that the funds would lose about 3% of potential returns a year.<ref>{{Cite news |title=Cryptofinance: into the ether |url=https://www.ft.com/content/2c447b68-1949-484b-bcb8-c2f004188522 |access-date=2024-07-09 |newspaper=Financial Times|date=May 24, 2024 }}</ref><ref>{{Cite web |title=Ethereum ETFs: The SEC's Surprising Shift in Stance |url=https://ccdata.io/blogs/ethereum-etfs-the-secs-surprising-shift-in-stance |access-date=2024-07-09 |website=ccdata.io |language=en}}</ref> Buying 1,000 ether at the start of 2023 (costing $1.2 million) would have netted a gain of $217,000 from staking, according to the ''Financial Times'', so a fund with ether worth $10 billion would lose out on rewards worth millions of dollars. That might result in fund issuers charging higher fees to customers to compensate.<ref>{{Cite news |title=Cryptofinance: into the ether |url=https://www.ft.com/content/2c447b68-1949-484b-bcb8-c2f004188522 |access-date=2024-07-09 |newspaper=Financial Times|date=May 24, 2024 }}</ref> 

===History of gold ETFs===
The first gold exchange-traded product was Central Fund of Canada, a [[closed-end fund]] founded in 1961. It amended its articles of incorporation in 1983 to provide investors with a product for ownership of gold and silver bullion. It has been listed on the [[Toronto Stock Exchange]] since 1966 and the [[American Stock Exchange]] since 1986.<ref>{{Cite press release |title=CENTRAL FUND CLOSES APPROXIMATELY US$57 MILLION SHARE ISSUE |date=March 5, 2008 |publisher=Central Fund of Canada |url=http://www.centralfund.com/pressrel_files/2008/CFOC%20closing%20press%20release%20-%20Mar%205%202008.pdf}}</ref>

The idea of a gold ETF was first conceptualized by Benchmark Asset Management Company Private Ltd in [[India]], which filed a proposal with the [[Securities and Exchange Board of India]] in May 2002. In March 2007 after delays in obtaining regulatory approval.<ref>{{Cite news |date=January 18, 2007 |title=Benchmark, UTI MF get Sebi nod for gold ETFs |work=[[The Economic Times]] |url=https://economictimes.indiatimes.com/mf/mf-news/benchmark-uti-mf-get-sebi-nod-for-gold-etfs/articleshow/1261674.cms}}</ref> The first gold exchange-traded fund was [[Gold Bullion Securities]] launched on the ASX in 2003, and the first [[silver exchange-traded fund]] was iShares Silver Trust launched on the NYSE in 2006. [[SPDR Gold Shares]], a commodity ETF, is in the top 10 largest ETFs by [[assets under management]].<ref name="top100">{{Cite web |title=Largest ETFs: Top 100 ETFs By Assets |url=https://etfdb.com/compare/market-cap/ |publisher=ETFdb}}</ref>

==Effects on price stability==
Purchases and sales of commodities by ETFs can significantly affect the price of such commodities.<ref>{{Cite news |last=McCrank |first=John |date=April 28, 2011 |title=ETF Edge-Rise of gold ETFs raises concern of price collapse |work=[[Reuters]] |url=https://www.reuters.com/article/etfs-gold/etf-edge-rise-of-gold-etfs-raises-concern-of-price-collapse-idUSN2828061020110428}}</ref><ref>{{Cite web |last=Ivanov |first=Stoyu I. |date=July 2011 |title=The influence of ETFs on the price discovery of gold, silver and oil |url=https://www.researchgate.net/publication/257773811 |website=Journal of Economics and Finance}}</ref>

Per the [[International Monetary Fund]], "some market participants believe the growing popularity of exchange-traded funds (ETFs) may have contributed to equity price appreciation in some emerging economies and warn that leverage embedded in ETFs could pose financial stability risks if equity prices were to decline for a protracted period."<ref name="gettingthere">{{Cite web |date=April 2011 |title=Global Financial Stability Report: Durable Financial Stability: Getting There from Here |url=https://www.imf.org/en/Publications/GFSR/Issues/2016/12/31/Global-Financial-Stability-Report-April-2011-Durable-Financial-Stability-Getting-There-from-24324 |publisher=[[International Monetary Fund]]}}</ref>

ETFs can be and have been used to manipulate market prices, such as in conjunction with [[short selling]] that contributed to the [[United States bear market of 2007–2009|United States bear market of]] 2007–2009.<ref>{{Cite web |title=5 Common Misconceptions About ETFs |url=https://www.investopedia.com/articles/exchangetradedfunds/11/worst-etf-misconceptions.asp |publisher=[[Investopedia]]}}</ref>

New regulations to force ETFs to be able to manage systemic stresses were put in place following the [[2010 flash crash]], when prices of ETFs and other stocks and options became volatile, with trading markets spiking and bids falling as low as a penny a share <ref name=fear/> in what the [[Commodity Futures Trading Commission]] (CFTC) investigation described as one of the most turbulent periods in the history of financial markets.<ref>{{Citation |last1=Kirilenko |first1=Andrei |title=The Flash Crash: The Impact of High Frequency Trading on an Electronic Market |date=May 5, 2014 |url=https://www.cftc.gov/sites/default/files/idc/groups/public/@economicanalysis/documents/file/oce_flashcrash0314.pdf  |archive-url=https://web.archive.org/web/20150402131543/http://www.cftc.gov/ucm/groups/public/@economicanalysis/documents/file/oce_flashcrash0314.pdf |archive-date=April 2, 2015 |last2=Kyle |first2=Albert S. |last3=Samadi |first3=Mehrdad |last4=Tuzun |first4=Tugkan |url-status=live}}.</ref><ref>{{Cite news |last1=Ackerman |first1=Andrew |last2=Krouse |first2=Sarah |date=September 21, 2015 |title=SEC Takes Aim at Risk in Asset Management |work=[[The Wall Street Journal]] |url=https://www.wsj.com/articles/sec-takes-aim-at-risk-in-asset-management-1442877158 |url-access=subscription}}</ref>

These regulations proved inadequate to protect investors in the August 24, 2015, flash crash,<ref name=fear/> "when the price of many ETFs appeared to come unhinged from their underlying value". "ETFs were consequently put under even greater scrutiny by regulators and investors."<ref name="fear">{{Cite news |last=Weinberg |first=Ari I. |date=December 6, 2015 |title=Should You Fear the ETF? ETFs are scaring regulators and investors: Here are the dangers—real and perceived |work=[[The Wall Street Journal]] |url=https://www.wsj.com/articles/should-you-fear-the-etf-1449457201 |url-status=live |url-access=subscription |archive-url=https://web.archive.org/web/20151207032640/http://www.wsj.com/articles/should-you-fear-the-etf-1449457201 |archive-date=December 7, 2015 }}</ref> Analysts at [[Morningstar, Inc.]] claimed in December 2015 that "ETFs are a "digital-age technology" governed by "Depression-era legislation".<ref name=fear/>

==Perception and adoption of ETFs in the European market==
The first European ETF came on the market in 2000, and the European ETF market has seen tremendous growth since. At the end of March 2019, the asset under management in the European industry stood at €760bn, compared with an amount of €100bn at the end of 2008.<ref name="ms20192">{{Cite web |date=April 2019 |title=A Guided Tour of the European ETF Market Place (April) |url=https://www.morningstar.com/lp/guided-tour-european-etf-marketplace |website=[[Morningstar, Inc.]]}}</ref> The market share of ETFs has increased significantly in recent years. At the end of March 2019, ETFs accounted for 8.6% of total AUM in investment funds in Europe, up from 5.5% five years earlier.<ref name="ms20192"/>

The use of ETFs has also evolved over time, as shown by regular observations of investment professionals’ practices in Europe.<ref name="edhec20192">{{Cite web |last1=Le Sourd |first1=Veronique |last2=Martellini |first2=Lionel |date=September 2019 |title=The EDHEC European ETF, Smart Beta and Factor Investing Survey 2019 |url=https://risk.edhec.edu/publications/edhec-european-etf-smart-beta-and-factor-investing-survey-2019 |publisher=EDHEC-Risk Institute}}</ref> EDHEC surveys show an increasing propagation of ETF adoption over the years, especially for traditional asset classes. While ETFs are now used across a wide spectrum of asset classes, in 2019, the main use is currently in the area of equities and sectors, for 91% (45% in 2006 <ref name="edhec20062">{{Cite web |last1=Amenc |first1=Noël |last2=Giraud |first2=Jean-René |last3=Goltz |first3=Felix |last4=Le Sourd |first4=Véronique |last5=Martellini |first5=Lionel |last6=Ma |first6=Xiaoyan |date=October 2006 |title=The EDHEC European Survey 2006. EDHEC-Risk Institute (October) |url=https://risk.edhec.edu/publications/edhec-european-etf-survey-2006 |publisher=EDHEC-Risk Institute}}</ref>) and 83% of the survey respondents, respectively. This is likely to be linked to the popularity of indexing in these asset classes as well as to the fact that equity indices and sector indices are based on highly liquid instruments, which makes it straightforward to create ETFs on such underlying securities. The other asset classes for which a large share of investors declare using ETFs are commodities and corporate bonds (68% for them both, to be compared with 6% and 15% in 2006, respectively), smart beta-factor investing, and government bonds (66% for them both, to be compared with 13% for government bonds in 2006). Investors have a high rate of satisfaction with ETFs, especially for traditional asset classes. In 2019, we observed 95% satisfaction for both equities and government bond assets.

===The role of ETFs in the asset allocation process===
Over the years, EDHEC survey results have consistently indicated that ETFs are used as part of a truly passive investment approach, mainly for long-term buy-and-hold investment rather than tactical allocation. However, over the past three years, the two approaches have gradually become more balanced, and, in 2019, European investment professionals declared that their use of ETFs for tactical allocation is actually greater than for long-term positions (53% and 51%, respectively).

ETFs, which originally replicated broad market indices, are now available in a wide variety of asset classes and a multitude of market sub-segments (sectors, styles, etc.). If gaining broad market exposure remains the main focus of ETFs for 73% of users in 2019, 52% of respondents will use ETFs to obtain specific sub-segment exposure. The diversity of ETFs increases the possibilities of using ETFs for tactical allocation. Investors can easily increase or decrease their portfolio exposure to a specific style, sector, or factor at a lower cost with ETFs. The more volatile the markets are, the more interesting it is to use low-cost instruments for tactical allocation, especially since cost is a major criterion for selecting an ETF provider for 88% of respondents.

===Expectations for ETF future developments in Europe===
Despite the high current adoption rate of ETFs and the already high maturity of this market, a high percentage of investors (46%) still plan to increase their use of ETFs in the future, according to the EDHEC 2019 survey responses. Investors are planning to increase their ETF allocation to replace active managers (71% of respondents in 2019), but they are also seeking to replace other passive investing products through ETFs (42% of respondents in 2019). Lowering costs is the main motivation for increasing the use of ETFs for 74% of investors. Investors are especially demanding further developments of ETF products in the areas of ethical, [[socially responsible investing]], and smart beta equity{{clarify|date=January 2024}} and factor indices{{clarify|date=January 2024}}. In 2018, [[Environmental, social, and corporate governance|ESG]] ETFs enjoyed growth of 50%, reaching €9.95bn, with the launch of 36 new products, compared to just 15 in 2017.<ref name="ms20192"/><ref>{{Cite web |title=The best socially responsible ETFs (SRI) |url=https://www.justetf.com/en/how-to/invest-in-social-responsibility-europe.html |access-date=2025-02-11 |website=www.justetf.com |language=en}}</ref> However, 31% of the EDHEC 2019 survey respondents still require additional ETF products based on sustainable investment, which appears to be their top concern.

Investors are also demanding ETFs related to advanced forms of equity indices, namely those based on multi-factor and smart beta indices (30% and 28% of respondents, respectively), and 45% of respondents would like to see further developments in at least one category related to smart beta equity or factor indices (smart beta indices, single-factor indices, and multi-factor indices). Consistent with the desire to use ETFs for passive exposure to broad market indices, only 19% of respondents show any interest in the future development of actively managed equity ETFs.
[[File:ETFs by Assets.png|right|alt=ETFs by asset size (1000 USD)|thumb|240x240px|ETFs by asset size (1000 USD) - as of date unknown, unsourced]]

==Notable issuers of ETFs==
{{Main|List of exchange-traded funds}}
* [[AdvisorShares]]: issues actively managed ETFs only, majority owned by Fund.com
* [[Amundi]]: second ETF provider in Europe <ref>https://www.morningstar.fr/fr/news/257771/les-fournisseurs-detf-veulent-être-un-guichet-unique.aspx</ref>
* [[Ark Invest|ARK Investment Management]]: issues actively managed ETFs that invest in companies involved in disruptive innovation
* [[Banco Itau]]: issues ETFs in Brazil
* [[BetaShares]]: issues ETFs in Australia
* [[BlackRock]]: issues [[iShares]]
* [[BNP Paribas]]: issues EasyETFs in Europe
* [[Boost ETP]]: issues short (inverse) and leveraged [[exchange-traded product]]s including 3X equity and commodity products in Europe
* [[Charles Schwab Corporation]]: issues ETFs
* [[Deutsche Bank]]: issues Xtrackers ETFs, and manages PowerShares DB commodity- and currency-based ETFs
* [[Dimensional Fund Advisors]]: factor-based ETFs
* [[ETF Securities]]: issues ETFs primarily in Australia
* [[Franklin Templeton Investments]]: Issues LibertyShares® ETFs
* [[Global X Funds]]: issues ETFs
* [[Guggenheim Partners]]: issues specialty Guggenheim Funds ETFs
* [[Indo Premier Investment Management]]: issues Premier ETFs in [[Indonesia Stock Exchange]]
* [[Invesco]]: issues [[Invesco PowerShares|Invesco]] ETFs, as well as BLDRS based on [[American depositary receipt]]s
* [[Lyxor Asset Management]]: issues Lyxor ETFs in France
* [[ProShares]]: issues a variety of ETFs including leveraged and inverse ETFs for the NASDAQ and S&P 500, as well as a bitcoin futures ETF
* [[Standard Life Aberdeen]]: issues commodity ETFs
* [[State Street Global Advisors]]: issues [[SPDR]]s
* [[The Vanguard Group]]: issues Vanguard ETFs, formerly known as VIPERs
* [[United States Commodity Funds]]: issues commodity ETFs such as the [[United States Oil Fund]]
* [[VanEck]]
* [[WisdomTree Investments]]: issues specialty ETFs

==See also==
* [[Exchange for ETF]] (EFETF) – a method in which [[market maker]]s exchange their ETFs for futures contracts.
* [[Exchange-traded note]] (ETN)
* [[List of American exchange-traded funds]]
* [[List of exchange-traded funds]]

==References==
{{Reflist|30em}}

==Further reading==
* Carrell, Lawrence. ''ETFs for the Long Run: What They Are, How They Work, and Simple Strategies for Successful Long-Term Investing''. [[Wiley (publisher)|Wiley]], September 9, 2008. {{ISBN|978-0-470-13894-6}}
* Ferri, Richard A. ''The ETF Book: All You Need to Know About Exchange-Traded Funds''. [[Wiley (publisher)|Wiley]], January 4, 2011. {{ISBN|0-470-53746-9}}
* Humphries, William. ''Leveraged ETFs: The Trojan Horse Has Passed the Margin-Rule Gates''. 34 Seattle U.L. Rev. 299 (August 31, 2010), available at [https://digitalcommons.law.seattleu.edu/sulr/vol34/iss1/8/ Seattle University Law Review].
* Koesterich, Russ. ''The ETF Strategist: Balancing Risk and Reward for Superior Returns''. [[Penguin Books]], May 29, 2008. {{ISBN|978-1-59184-207-1}}
* Lemke, Thomas P.; Lins, Gerald T. & McGuire, W. John. ''Regulation of Exchange-Traded Funds''. [[LexisNexis]], 2015. {{ISBN|978-0-7698-9131-6}}

==External links==
* [https://www.trackinsight.com/en/education/history-of-etfs A brief history of ETFs] – [[Trackinsight]]
* [https://www.asx.com.au/markets/trade-our-cash-market/overview/etfs-and-other-etps/etp-directory Exchange Traded Funds (ETF)] – [[Australian Stock Exchange]] (ASX)
* [https://www.jse.co.za/trade/equity-market/exchange-traded-products/exchange-traded-funds Exchange Traded Funds (ETF)] – [[Johannesburg Stock Exchange]] (JSE)
* [https://www.londonstockexchange.com/raise-finance/etps/etfs?lang=en Exchange Traded Funds (ETF)] – [[London Stock Exchange]] (LSE)
* [https://www.tsx.com/listings/listing-with-us/sector-and-product-profiles/exchange-traded-funds Exchange Traded Funds (ETF)] – [[Toronto Stock Exchange]] (TSX)
* [https://www.nyse.com/products/exchange-traded-products Exchange Traded Products] – [[New York Stock Exchange]]
* [https://www.nasdaq.com/market-activity/funds-and-etfs Funds + ETFs] – [[NASDAQ Stock Market]]
* [https://etfdb.com/2009/the-etf-hall-of-fame-25-people-who-revolutionized-the-etf-industry/ The ETF Hall of Fame: 25 People Who Revolutionized the ETF Industry] – ETF Database
* [https://www.trackinsight.com/en/education/what-are-etfs What are ETFs?] – [[Trackinsight]]

{{Investment-management}}

[[Category:Exchange-traded funds| ]]
[[Category:Management cybernetics]]