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Who
Creates Exchange Traded Funds
Financial Companies Serving As Fund Sponsors Create And Manage A Variety Of Exchange Traded
Funds.
Exchange Ttraded Funds (ETFs) are created and brought to the market by a fund sponsor, which is typically a large
financial institution. For example, Barclay’s Global Investors is one of the largest ETF fund sponsors.
The fund sponsor (also known as the fund manager) designs, creates and manages the ETF. Before making the fund
available to the public, the sponsor must apply for regulatory approval, and constructs the criteria and processes
for identifying the components that will comprise the underlying basket of securities.
Many ETFs are based on established market indexes, which provide the formula that determines the composition of
that particular basket of securities. Some well known market indexes include the S&P 500, which was created and
managed by Standard and Poor’s, and the Dow Jones Industrial Average, which was created by Dow Jones & Company.
Such index creators typically license the rights to use an index to a fund sponsor. In other cases the index
creator may actually be the fund sponsor.
All Exchange Traded Funds trade on an exchange, such as the Amex, NASDAQ, or NYSE. Investors buy and sell the funds
through their brokerage firm, just as they would with any other security. There are even some cases brokerages that
are also sponsors or managers of ETFs.
ETFs are worth studying as they potentially provide diversified exposure to various securities markets at a
significantly lower cost than mutual funds, allowing you to target specific sectors, geographic regions, or asset
classes. Depending on your overall investment strategy, differing ETFs may make sense as a core holding in your
portfolio, while others are better suited as a supplemental investment.
Make sure you understand the underlying index and assets that an ETF is based on, the risks associated with that
index or asset, and how it fits with the remainder of your portfolio and investment goals.
by TheOptionClub.com -
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Harnessing the power and flexibility of Exchange Traded Funds has never been so readily available to the individual
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