ETF Sponsor

  

This ETF is brought to you by Henson's Moon Pies! A space flight of flavor in every bite!

Okay...not quite like that.

ETF stands for Exchange-Traded Fund. It's a single financial instrument that represents a broad industry or type of investment. Buy one ETF and you can have a stake in the fortunes of an entire industry. There are ETFs covering Russian stocks and ETFs for the oil refinery sector and ETFs to track movement in Treasury bond prices.

But ETFs are created, not born. Individual companies issue stocks. They represent part ownership in the company. ETFs are more complicated in their set-up. They track certain industries, but they need to be constructed and managed by someone. That someone is the ETF's sponsor.

Typically, funds or financial institutions sponsor ETFs. For instance, you could invest in the Vanguard Short-Term Bond ETF (sponsored by Vanguard). Or you can buy the SPDR S&P 500 ETF, which tracks movement in the S&P 500 index; it's managed (i.e. sponsored) by State Street Global Advisors.

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Finance: What Are ETFs?275 Views

00:00

Finance allah shmoop shmoop what are efs Well first this

00:07

is the random financial terms you want to be asked

00:10

in the financial term spelling bee and second you should

00:13

know that e t f stands for exchange traded fund

00:18

f's are kissing cousins of index funds with one key

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subtle but important difference f don't change at least generally

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speaking an index fund might reflect the transportation industry and

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have so much exposure to ford gm united airlines tesla

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etcetera But it's required tohave say sixty five percent of

00:39

its exposure to companies based in the united states in

00:42

its charter every month that index fund has to re

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balanced that exposure So if the auto companies do very

00:49

poorly in a given month index fund has to re

00:53

balance by buying mohr shares of those auto companies to

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make up the difference you know given that they've performed

00:59

poorly relative toa airlines trucking company's railroads jeff howard segways

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and so on But in a t f the fund

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is basically set once and the shares just really kind

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of float if over a decade the auto companies do

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really well then in an e t f the auto

01:16

companies will just have a dominant influence on the overall

01:19

performance of the fund The management company doesn't have to

01:23

buy and sell shares regularly in an e t f

01:25

till fulfill the legal promises it agreed to at the

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outset of the fund in the way in index fund

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re balances its shares by buying and selling them So

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what does that mean to you Well it means that

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fc may drift in given directions like this guy For

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example a generic technology e t f might have had

01:43

a total exposure of say five percent to internet stocks

01:47

in the beginning of nineteen ninety seven but amazon ebay

01:50

yahoo netflix and a well performed massively better than the

01:54

broader technology market which did well but just not omg

01:58

dot com well so that five percent waiting twenty years

02:02

later might be more like fifty percent or mohr of

02:05

that particular e t f but one other key aspect

02:08

of it is that it's traded like a stock i

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e in one block and trade throughout the day there's

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a bid and an ask price The bids are all

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added up and shares in the fund can be bought

02:20

And sold at any time throughout the day Although the

02:23

market sets the price of an f just like it

02:25

does on a stock Well there now you're all ready

02:28

for the financial term spelling bee And they might also

02:31

ask you to spell lipo Yeah you might want to 00:02:33.69 --> [endTime] write that one on your arm

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