Exchange Traded Product (ETP)

An exchange-traded product (ETP) is a derivatively-priced security which trades intra-day on a national stock exchange. ETPs are typically benchmarked to indices, stocks, commodities, or may be actively managed. ETPs qualify for advanced types of orders such as limit orders and stop orders. This is in contrast to traditional mutual funds which are only available for buying and selling at the close of business each day.

The most popular exchange traded product is the exchange traded fund (ETF). These are securities that track an index, commodity or basket of assets. Exchange traded notes, 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. Exchange traded products have experienced huge growth since they were introduced. Different tax treatment applies to the various types of exchange traded products.

Exchange Traded Fund (ETF)

Exchange Traded Funds (ETFs) are increasingly popular investment vehicles. Before you decide to invest, there are some basic questions you should consider in order to make an informed investment decision.

What are Exchange Traded Funds?

An ETF is an investment product that allows an investor to buy and sell shares in a single security that represents a fractional ownership of a portfolio of securities. Legally, ETFs are open-ended investment companies or unit investment trusts that are registered under the Investment Company Act of 1940.

ETFs are one type of structured exchange-traded product. There are other types as well, but they do not share all the characteristics of ETFs, even though they may be referred to as such in the popular press and on some websites. Examples of these other investment products include exchange traded notes (ETNs), equity linked notes, closed end funds and exchange traded vehicles (ETVs), among others.

ETFs are similar to index mutual funds in that they replicate the returns of predefined stock indexes.

What kinds of ETFs are available?

The first ETF, SPDR Trust, was listed in 1993 with an underlying portfolio designed essentially to replicate the performance of the S&P 500 index. Since then over 700 ETFs have been introduced that allow investors to gain exposure to a wide range of investment strategies including broad stock indexes, industry sectors, fixed income indexes and international and global indexes.

Recently, ETFs have introduced investment objectives that attempt to replicate a multiple or the inverse of the daily return of an underlying index. For example, one fund replicates twice the daily return of the Dow Jones Industrial Average. The "short" or "inverse" ETFs replicate the inverse of the daily returns of the underlying index.

Another new type of investment offered in the ETF structure is the actively managed portfolio. Unlike traditional ETFs, which are designed to track an index, actively managed ETFs permit the fund manager to buy and sell securities and derivatives according to a stated strategy, described in the prospectus. As a condition of operations, the portfolio or fund holdings are disclosed daily on the fund's website.

How are ETFs traded?

ETFs are listed on a national securities exchange; they can be bought and sold like common stocks throughout the trading day. Individual investors may purchase or sell an ETF through a stock brokerage account. Investors may enter the same types of orders that are placed for shares of stock (including, for example, market and limit orders). There are also listed options on some ETFs.

Widely used ETPs available on stock2own:

AEU.UN ACTIVEnergy Income Fund
CH Aberdeen Chile Fund, Inc.
AYN Alliance New York Municipal Income Fund
STQAX AmericaFirst Seasonal Trends A
MRF American Income Fund
XAA American Municipal Income Portfolio
SLA American Select Portfolio
ASP American Strategic Income Portfolio
BSP American Strategic Income Portfolio II
CSP American Strategic Income Portfolio III
APB Asia Pacific Fund
BBO Big Bank Big Oil Split Corp
CYE BlackRock Corporate High Yield Fund III Inc.
HYV BlackRock Corporate High Yield Fund V Inc.
COY BlackRock Corporate High Yield Fund, Inc
BQR BlackRock EcoSolutions Investment Trust
HIS BlackRock High Income Shares
BHY BlackRock High Yield Trust
BNA BlackRock Income Opportunity Trust
MJI BlackRock MuniYield New Jersey Insured Fund Inc.
PSW BlackRock Preferred & Corporate Income Strategies Fund Inc.
PSY BlackRock Preferred Income Strategies Fund Inc.
BPP BlackRock Preferred Opportunity Trust
ARK BlackRock Senior High Income Fund Inc.
BHD BlackRock Strategic Bond Trust
RBN.UN Blue Ribbon Income Fund
BTF Boulder Total Return Fund Inc.
SBC Brompton Split Banc Corp
VIP.UN Brompton VIP Income Fund
CIP.UN CI Master Limited Partnership
CGI Canadian General Investments Closed Fund
CGRIF Canadian General Investments Closed Fund
LFE Canadian Life Companies Split Corp
RTU.UN Canadian Resources Income Trust
CEF.A Central Fund of Canada Ltd
GTU Central GoldTrust
CRT.UN Citadel SMaRT Fund
FAA Claymore/NYSE Arca Airline ETF
DVM Cohen & Steers Dividend Majors Fund
CGQBX Columbia Large Growth Quantitative B
CGQRX Columbia Large Growth Quantitative R
CFP Cornerstone Progressive Return Fund
COX.UN Coxe Commodity Strategy Fund
HYB.UN DDJ High Yield Fund
DPF.UN DPF India Opportunities Fund
DNY Denali Fund Inc
DPO Dow 30 Enhanced Premium & Income Fund Inc
DPD Dow 30 Premium & Dividend Income Fund
ECVTF Economic Investment Trust Ltd
EMT Emerging Global Shares Metals & Mining
ETF Emerging Markets Telecommunications Fund
EOSOF EnerVest Energy and Oil Sands Total Return Trust
EOS.UN EnerVest Energy and Oil Sands Total Return Trust
LFEIX Federated Equity Income F
FCNTX Fidelity Contrafund
FTN Financial 15 Split Corp
FFN Financial 15 Split Corp II
FC.UN Firm Capital Mortgage Investment Trust
TRF.UN First Asset Energy & Resource Fund
EWP.UN First Asset Pipes & Power Income Fund
FAY.UN First Asset Yield Opportunity Trust
FDV First Trust DB Strategic Value ETF
GCF Global Income & Currency Fund
GBA GlobalBanc Advantaged 8 Split Corp
IAH HOLDRS Internet Architecture
HAV Helios Advantage Income Fund
HIH Helios High Income Fund
HMH Helios Multi-Sector High Income Fund
HSA Helios Strategic Income Fund
HXU Horizons BetaPro S&P/TSX 60 Bull Plus ETF
INC.UN Income Financial Trust
IF Indonesia Fund
LBS Life & Banc Split Corp
LFEAX MFS Lifetime 2035 A
LFETX MFS Lifetime 2035 R3
MID.UN MINT Income Fund
MKZ.UN Mackenzie Master LP
DMM MacroShares Major Metro Housing Down
RNE Morgan Stanley Eastern Europe Fund Inc.
MMN.UN Multi Manager Limited Partnership I
NGZ Nicholas-Applegate Global Equity & Conv Inc Fund
NAI Nicholas-Applegate Intl Premium & Strategy Fund
NCO Nuveen California Municipal Market Opportunity Fund
NCP Nuveen California Performance Plus Municipal Fund
NUC Nuveen California Quality Income Municipal Fund
NVC Nuveen California Select Quality Municipal Fund
JPG Nuveen Equity Premium & Growth Fund
JLA Nuveen Equity Premium Advantage Fund
JPZ Nuveen Equity Premium Income Fund
JSN Nuveen Equity Premium Opportunity Fund
JGG Nuveen Global Government Enhanced Income Fund
NNF Nuveen Insured New York Premium Income Municipal Fund
NPX Nuveen Insured Premium Income Municipal Fund 2
NMP Nuveen Michigan Premium Income Municipal Fund
NSIOX Nuveen Municipal Opportunity Fund Inc
NQJ Nuveen New Jersey Investment Quality Municipal Fund
NNJ Nuveen New Jersey Premium Income Municipal Fund
NQN Nuveen New York Investment Quality Municipal Fund
NNP Nuveen New York Performance Plus Municipal Fund
NUN Nuveen New York Quality Income Municipal Fund
NVN Nuveen New York Select Quality Municipal Fund
NPY Nuveen Pennsylvania Premium Income Municipal Fund 2
PDVBX PIMCO Diversified Inc B
PLK PowerShares Active Low Duration Fund
PMA PowerShares Active Mega Cap Fund
PAO PowerShares Autonomic Balanced Growth NFA Global Asset Portfolio
PCA PowerShares Autonomic Balanced NFA Global Asset Portfolio
PTO PowerShares Autonomic Growth NFA Global Asset Portfolio
PZD PowerShares Cleantech Portfolio
DAG PowerShares DB Agriculture Double Long ETN
AGF PowerShares DB Agriculture Long ETN
BDD PowerShares DB Base Metals Double Long ETN
BOM PowerShares DB Base Metals Double Short ETN
BOS PowerShares DB Base Metals Short ETN
DYY PowerShares DB Commodity Double Long ETN
DDP PowerShares DB Commodity Short ETN
SZO PowerShares DB Crude Oil Short ETN
PJB PowerShares Dynamic Banking
PIQ PowerShares Dynamic MagniQuant
PWJ PowerShares Dynamic Mid Cap Growth
PKOL PowerShares Global Coal Portfolio
PKN PowerShares Global Nuclear Portfolio
PWND PowerShares Global Wind Energy Portfolio
PXN PowerShares Lux Nanotech Portfolio
PMNA PowerShares MENA Frontier Countries Portfolio
PYH PowerShares Value Line Industry Rotation Portfolio
PWO PowerShares XTF: Dynamic OTC Portfolio
PIC.A Premium Income Ord Shs
PDV Prime Dividend Corp
PDVYX Putnam Diversified Income Y
PMO Putnam Municipal Opportunities Trust
RBS R Split III Corp
RENN Renaissance Capital Growth and Income Fund III Inc.
RSU Rydex 2x S&P 500 ETF
RSW Rydex Inverse 2x S&P 500 ETF
SLS SL Split Corp
LAG SPDR Barclays Capital Aggregate Bond ETF
MBG SPDR Barclays Capital Mortgage Backed Bond ETF
IPE SPDR Barclays Capital TIPS ETF
ELR SPDR Dow Jones Large Cap ETF
EMM SPDR Dow Jones Mid Cap ETF
TMW SPDR Dow Jones Total Market ETF
SIN.UN Sciti Trust
SPU.UN Sustainable Production Energy Trust
TF Thai Capital Fund
TCT.UN Top 10 Canadian Financial Trust
TYN Tortoise North American Energy Corp
TRH.UN Triax Diversified High Yield Trust
UF.UN Uranium Focused Energy Fund
URPTF Uranium Participation Corp
GEX VanEck Vectors Global Alternative Energy ETF
WFSSX Wells Fargo Advantage Intrns SmCpVal I
WFSTX Wells Fargo Advantage Specialized Tech A
JYF WisdomTree Dreyfus Japanese Yen Fund
SZR WisdomTree Dreyfus South African Rand Fund
ROI WisdomTree LargeCap Growth Fund
WFS World Financial Split Corp
CFT iShares Barclays Credit Bond Fund
IFSM iShares FTSE Developed Small Cap ex-North America Index Fund
FTY iShares FTSE NAREIT Real Estate 50 Index Fund
JKD iShares Morningstar Large Core Index Fund
JKE iShares Morningstar Large Growth Index Fund
JKH iShares Morningstar Mid Growth Index Fund
IWZ iShares Russell 3000 Growth
IWW iShares Russell 3000 Value

What ETF types or categories are available?

  • US Equity ETF
    All constituents trade on a US exchange.
  • Global Equity ETF
    One or more of the constituents do not trade on a US Exchange.
  • Fixed Income ETF
    The constituent list contains government and / or corporate debt instruments.
  • Commodity Based ETF
    This classification of ETF has no constituents but is structured to reflect the valuation of a commodity such as gold, silver, oil or interest rates.
  • Exchange Traded Notes
    A type of unsecured, unsubordinated debt security that was first issued by Barclays Bank PLC. The purpose of ETNs is to create a type of security that combines both the aspects of bonds and exchange traded funds (ETF). Similar to ETFs, ETNs are traded on a major exchange.
  • Closed End Fund
    While often very similar in structure and trading to many ETFs, these funds (sometimes referred to as Closed End ETFs) are considered traditional mutual funds but with a fixed number of outstanding shares.

Interest in ETFs has soared in recent years, and the ETF industry has responded by creating new funds. In fact, it is hard to find an industry or market segment that is not represented by one or more ETFs. Observing ETF price trends and comparing returns over shorter and longer time frames, you can see which market segments are rotating into, or out of, favor.

External Links