What are 'Exchange Traded Products – ETP'

Exchange-traded products (ETP) are a type of security that is derivatively priced and trades intra-day on a national securities exchange. ETPs are priced so the value is derived from other investment instruments, such as a commodity, a currency, a share price or an interest rate. Generally, ETPs are benchmarked to stocks, commodities or indices. They can also be actively managed funds. ETPs include exchange-traded funds (ETFs), exchange-traded vehicles (ETVs), exchange-traded notes (ETNs) and certificates.

BREAKING DOWN 'Exchange Traded Products – ETP'

The ETP that is the most popular is the ETF. ETFs are securities that track an index, commodity or basket of assets. ETNs, on the other hand, are a type of unsecured, unsubordinated debt security. The value of an ETN can be affected by the credit rating of the issuer and not just changes in the underlying index.

ETPs have experienced huge growth since they were introduced. Different tax treatment applies to the various types of ETPs.

Exchange-Traded Products vs. Mutual Funds

ETPs such as the ETF were developed out of the desire to create a fund that had more flexibility than the mutual fund. Mutual funds are typically priced just once at the end of the trading day, but ETFs trade like stocks and can be bought and sold throughout the day. ETPs often carry slightly lower expense ratios than their mutual fund counterparts. The largest ETF in the marketplace is the SPDR S&P 500 ETF, with assets of more than $254 billion as of May 2018.

ETPs also require a brokerage account to trade, so buying and selling ETP shares is likely to result in brokerage commission costs. Additionally, differences in the bid price and ask price of a security could add to the cost of trading in ETPs. Many no-load mutual funds, on the other hand, can be bought and sold without any trading commission, and they do not require a brokerage account.

Growth of Exchange-Traded Products

Since the debut of the first ETF in 1993, these funds and other ETPs have grown significantly in size and popularity. In 2017, ETFs claimed roughly $4.8 trillion in total assets under management (AUM), according to ICI.org.

The low-cost structure of ETPs has contributed to their popularity. Many ETPs are lower-cost index funds, which continue to attract assets away from potentially higher-cost actively managed funds. However, the amount of money being pulled out of actively managed funds dwindled in 2017 after several years of more substantial outflows. Passively managed funds gained around $464 billion in net asset inflows in 2017, while actively managed funds saw net outflows of $7 billion during the same period, according to Morningstar. In recent years, actively managed funds had seen outflows in the hundreds of billions.

RELATED TERMS
  1. Investment Fund

    An investment fund is the pooled capital of investors that enables ...
  2. Index ETF

    Index ETFs are exchange-traded funds that seek to track a benchmark ...
  3. Exchange-Traded Fund (ETF)

    An exchange-traded fund (ETF) is a security that tracks an index, ...
  4. ETF of ETFs

    An ETF of ETFs is an exchange-traded fund (ETF) that tracks other ...
  5. Paper Industry ETF

    The paper industry ETF is an exchange-traded fund that invests ...
  6. Mutual Fund Timing

    Mutual fund timing is the practice of trading mutual funds according ...
Related Articles
  1. Investing

    Why The Bull Market is Alive and Well for ETFs

    Money floods into U.S. exchange-traded products as it flows out of U.S. equity mutual funds
  2. Investing

    Fiduciary Rule May Push ETF Assets to $10 Trillion

    Assets in exchange-traded products could hit $10 trillion by 2020 in the wake of the new fiduciary rule.
  3. Investing

    Commodities Without Worries

    ETFs have made commodities investing easier, but look before leaping.
  4. Investing

    Volatility ETPs Are Enjoying the Limelight

    Long volatility strategies have been winning plays this year, but risks remain.
  5. Investing

    Dakota Access Pipeline Partners to Merge (ETP, SXL)

    Sunoco Logistics Partners agrees to merge with Energy Transfer Partners in a unit-for-unit transaction designed to strengthen their balance sheets.
  6. Investing

    ETF Inflows Continue Assault on Record Books

    ETFs continue adding assets at a record pace, even during the supposedly slow summer months.
  7. Investing

    ETFs Are Trouncing Previous Inflows Records

    ETFs are gathering assets at a staggering pace, with bond and equity funds leading the way.
  8. Investing

    Advantages of Exchange-Traded Funds Over Mutual Funds

    Here are the many advantages and few disadvantages of exchange-traded funds vs. mutual funds.
  9. Investing

    BlackRock: These Trends Will Drive ETF Growth

    ETF assets could top $12 trillion in just a few years if these forecasts prove accurate.
  10. Investing

    Investopedia's Guide to Smart Beta ETF Investing

    Smart Beta may be one of those financial terms that raises the ire of many market participants, but its success in spawning a new class of exchange traded funds (ETFs) is indisputable.
RELATED FAQS
  1. Should I invest in ETFs or index funds?

    Learn advantages to investing in exchange-traded funds, or ETFs, and index funds, and decide whether to include them in your ... Read Answer >>
  2. 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 >>
Hot Definitions
  1. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  2. Current Assets

    Current assets is a balance sheet account that represents the value of all assets that can reasonably expected to be converted ...
  3. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
  4. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  5. Cost of Debt

    Cost of debt is the effective rate that a company pays on its current debt as part of its capital structure.
  6. Depreciation

    Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life and is used to account ...
Trading Center