A statistical indicator providing a representation of the valueof the securities which constitute it. Indices often serve asbarometers for a given market or industry and benchmarksagainst which financial or economic performance is measured.
Exchange Traded Fund. A fund that tracks an index, but can be traded like a stock. ETFs always bundle together thesecurities that are in an index; they never track actively managed mutual fund portfolios (because most activelymanaged funds only disclose their holdings a few times a year, so the ETF would not know when to adjust its holdings most of the time). Investors can do just about anything with an ETF that they can do with a normal stock, such as short selling. Because ETFs are traded on stock exchanges, they can be bought and sold at any time during the day (unlike most mutual funds). Their price willfluctuate from moment to moment, just like any other stock’s price, and an investor will need a broker in order topurchase them, which means that he/she will have to pay acommission. On the plus side, ETFs are more tax-efficientthan normal mutual funds, and since they track indexes they have very low operating and transaction costsassociated with them. There are no sales loads orinvestment minimums required to purchase an ETF. The first ETF created was the Standard and Poor’s DepositReceipt (SPDR, pronounced “Spider”) in 1993. SPDRs gave investors an easy way to track the S&P 500 without buying an index fund, and they soon become quite popular.