Since ETFs trade like stocks, an investor can execute stock-like trades with ETFs, such as stop-loss, limit or short sale orders.
ETFs track a variety of benchmarks and assets, including equities, fixed-income, commodities and currencies. The funds can also be broken down into sectors and sub-sectors. Since no two ETFs are created alike, investors will have to look at a fund’s holdings when comparing ETFs that cover the same investment theme.
Discouraged by underperformance in actively managed mutual funds, more investors are turning to passive index-based ETFs. ETFs made up 13.2% of fund industry assets by the end of 2013, compared to 12.7% for 2012. According to a recent Charles Schwab survey, 50% of respondents are seeking to increase ETF holdings over the next year, compared to 41% of 2012 respondents.
There are 1,542 U.S.-listed ETFs on the market, with almost $1.7 trillion in assets under management.
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.