A:

Yes. An exchange-traded fund (ETF) is a type of security that tracks a basket of assets or an index (such as an index fund), but trades like a stock.

Just like any open-end mutual fund, an ETF falls under the supervision and control of the Securities & Exchange Commission (SEC). A fund company must get the SEC's approval for incorporating and registering an ETF. Mirroring the structure of a regular mutual fund, an ETF has a board of directors, officers, and an investment advisor and uses third-party providers to handle organizational functions such as accounting, legal, tax and custodial services.

In addition, an ETF uses the same type of fund documentation – prospectus, statement of additional information, and annual, semi-annual or quarterly reports – for shareholders. A review of these documents will clearly show that an exchange-traded fund and an open-end mutual are not exactly the equivalent of identical twins but would most certainly qualify as the fraternal variety.

Details concerning an ETF's board of directors – composition, credentials, compensation and fund ownership positions – can be found in the fund's statement of additional information (SAI).

To learn more, see Introduction To Exchange-Traded Funds.

This question was answered by Richard Loth.

RELATED FAQS

  1. What does a high turnover ratio signify for an investment fund?

    Find out more about the turnover ratio, what the turnover ratio measures and what a high turnover ratio indicates about an ...
  2. Does index trading increase market vulnerability?

    Learn how the rise in popularity of passive ETFs and mutual funds tracking indexes has increased the correlation among stocks, ...
  3. What is the difference between passive and active asset management?

    Find out about active asset management, passive asset management, how these strategies are utilized and the differences between ...
  4. Is there a situation in which wash trading is legal?

    Learn about what wash trading is and how it can affect the value of a stock. Explore the difference between wash trading ...
RELATED TERMS
  1. Outstanding Shares

    A company's stock currently held by all its shareholders, including ...
  2. Board Of Directors - B Of D

    A group of individuals that are elected as, or elected to act ...
  3. Ex Gratia Payment

    A payment made to an individual by an organization, government, ...
  4. Poison Put

    A takeover defense strategy in which the target company issues ...
  5. Assented Stock

    A share of stock owned by a shareholder who has agreed to a takeover.
  6. Back-End Plan

    An anti-acquisition strategy in which the target company provides ...

You May Also Like

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: Powershares DB US Dollar ...

  2. Mutual Funds & ETFs

    ETF Analysis: Market Vectors Gold Miners

  3. Mutual Funds & ETFs

    The 5 Biggest ETF Companies

  4. Mutual Funds & ETFs

    The Top 3 ETFs For Investing in Agriculture

  5. Mutual Funds & ETFs

    The Top 3 ETFs For Investing in the ...

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!