ETF Sponsor

Loading the player...

DEFINITION of 'ETF Sponsor '

The company or financial institution which creates and administers an exchange-traded fund.

To set up the ETF, the sponsor creates the underlying index around which the ETF will be passively managed. The initial securities chosen for the fund are then delivered to the ETF sponsor by various institutional investors, who in exchange receive creation units – large blocks of ETF shares numbering 100,000 or more.

The holders of the creation units then market individual ETF shares to retail investors via the open market (stock exchanges); the ETF sponsor typically will deal only with the creation units and institutional shareholders and will not trade shares directly with retail investors.

BREAKING DOWN 'ETF Sponsor '

ETF sponsors have created quite a large industry for themselves in the time since the introduction of the first ETF, in 1993. Some of the larger, more diversified ETF sponsors may hold a portion of a fund's securities in-house, while others are more strictly focused on marketing, index maintenance and market liquidity. The sponsor also redeems physical securities for creation units should the holders of the creation units wish to make the swap.

When changes need to be made to an ETF portfolio due to changes in the underlying index, the sponsor will work with its creation-unit holders to exchange securities out for new ones that will reflect the updated index.

RELATED TERMS
  1. Creation Unit

    A set of shares or securities that makes up one unit of a fund ...
  2. Authorized Participant

    An entity chosen by an exchange-traded fund's (ETF) sponsor to ...
  3. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  4. ETF Of ETFs

    An exchange-traded fund (ETF) that tracks other ETFs rather than ...
  5. Sponsor

    1. In the context of stocks, an influential investor who creates ...
  6. Index ETF

    Exchange-traded funds that follow a specific benchmark index ...
Related Articles
  1. Mutual Funds & ETFs

    An Inside Look At ETF Construction

    If you're an investor who likes to understand how and why your investment products work, this article is for you!
  2. Mutual Funds & ETFs

    Exchange-Traded Funds: Background

    Compared to mutual funds, ETFs are relatively new. The first U.S. ETFs were created by State Street Global Advisors with the launch of the S&P 500 depositary receipts, also know as SPDRs ...
  3. Mutual Funds & ETFs

    A Look At the Growth Of the ETF Industry

    Explore the phenomenal growth rate of the ETF industry, and learn some of the principal reasons why ETFs are projected to continue to grow at a rapid pace.
  4. Investing Basics

    The Advantages of ETFs Compared to Index Funds

    With the ongoing ETF boom, ETFs gain more variety and increased competition in the market leads to further investors' advantages compared to index funds.
  5. Mutual Funds & ETFs

    Actively-Managed ETFs: Risks And Benefits For Investors

    Find out how these second-generation ETFs are changing the marketplace.
  6. Mutual Funds & ETFs

    Building An All-ETF Portfolio

    Balance is the key when selecting an all-ETF portfolio that will hedge against market volatility.
  7. Mutual Funds & ETFs

    Exchange-Traded Funds: Introduction

    Exchange-traded funds (ETFs) can be a valuable component for any investor's portfolio, from the most sophisticated institutional money managers to a novice investor who is just getting started. ...
  8. Professionals

    Exchange Traded Funds (ETFs)

    CFA Level 1 - Exchange Traded Funds (ETFs). Learn how exchange traded funds look to mimick the overall market's return. Covers the advantages and risks of ETFs, and how they trade.
  9. Top ETFs and What They Track: Introduction to ETFs

    Investopedia explains: An Exchange-Traded Fund (ETF) is an investment fund that tracks an index, specific asset or basket of assets to which it is pegged.
  10. Mutual Funds & ETFs

    4 Things to Know Before Choosing an ETF

    ETFs are a low-cost way to get exposure to different markets. But they're not all the same. Investors should research the following key information regarding the ETF before buying it.
RELATED FAQS
  1. How are new exchange traded funds (ETFs) created?

    Read about how exchange-traded funds are proposed to the SEC, created with underlying assets, sold to authorized participants ... Read Answer >>
  2. Do ETFs pay capital gains?

    Learn about exchange-traded funds (ETFs), which can generate capital gains for their shareholders due to occasional and substantial ... Read Answer >>
  3. Are ETFs required to pay out a percentage of income as dividends?

    The exchange-traded fund (ETF) is a relatively new investment vehicle, hitting the market in 1993. A fund company can create ... Read Answer >>
  4. Who's in charge of managing exchange-traded funds?

    An exchange-traded fund (ETF) is a security that tracks an index but has the flexibility of trading like a stock. Just like ... Read Answer >>
  5. How can I check to see if an ETF’s price reflects its asset value?

    Learn how an investor can find the net asset value for an exchange-traded fund and why the net asset value and market value ... Read Answer >>
  6. Besides stocks, what other asset classes can I invest in through ETFs?

    Discover the extremely far-reaching range of investment asset classes that are available to investors through exchange-traded ... Read Answer >>
Hot Definitions
  1. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  2. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  3. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  4. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  5. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  6. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
Trading Center