Investing in US markets

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17. Exchange-traded funds

Exchange traded funds (ETFs) have increased sharply in popularity among US investors in recent years. They are, in effect, index tracking mutual funds that are listed and can be bought and sold like normal shares. There are good explanations of how they work at www.indexfunds.com and at www.ishares.net.

ETFs are mainly traded on the Amex exchange (part of NASDAQ). There are over 80 to choose from (as at 15.8.2001) based around a range of different market, sector and country indices.

The most popular are those that mimic the action of the NASDAQ100 index and the S&P500, a broader market index. ETFs are also available for a range of leading sectors.

There are a number of noteworthy aspects to ETFs, which are highlighted below:

• They allow investment to be made in sector or index without the volatility present in individual shares.
• They provide instant diversification of risk,
• They are cheap: management charges are often well below those of actively management funds. Charges are paid out of dividend income.
• They have ticker symbols and can be dealt through normal brokerage channels.

1. Diversification 2. Opportunity 3. Special features of the US market 4. You are already investing abroad! 5. Opening an account to deal in US securities 6. Inputting orders 7. Cash management 8. Currency factors 9. Tax 10. Trading on margin 11. Short selling 12. Types of investment - introduction 13. Shares (common stocks) 14. Indices 15. Bonds 16. Offshore mutual funds 17. Exchange-traded funds 18. ADRs 19. Options 20. Researching US companies - the basics 21. National newspapers 22. Regional newspapers and specialist magazines 23. Business TV 24. Company annual reports 25. Corporate web sites 26. EDGAR 27. Financial portals 28. Broker research 29. Charts 30. Conclusion

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