Exchange Traded Funds and Fund Types Review

Flashcards covering Exchange Traded Funds (ETFs), investing strategies, market capitalization, and various types of investment funds based on the lecture transcript.

Exchange-traded fund (ETF)

Technically structured as an open-end management company, these are negotiable securities that trade on exchanges in the secondary market like stocks.

Net Asset Value (NAV)

The value of a fund's underlying assets, calculated once per day based on the closing value of the securities in the portfolio.

ETF arbitrage

A feature behind the scenes where institutional investors perform transactions with ETF issuers to pull market prices back to the NAV if they deviate.

Broker-dealers

Financial firms that help their customers trade securities; prominent examples include E*Trade, Fidelity, Charles Schwab, and Robinhood.

Passive investing

An approach where an investor invests in an index representing a broad segment of the market instead of selecting individual securities.

Dow Jones Industrial Average

A well-known index that tracks $30$ of the largest US-based stocks.

Active investing

An approach that involves selecting specific investments rather than "taking the average" of an index, usually measuring performance against a relevant benchmark.

Spyders

The name of the ETF that tracks the S&P 500 index.

DIAmonds

The name of the ETF that tracks the Dow Jones Industrial Average index.

Qubes

The name of the ETF that tracks the Nasdaq 100 index.

Actively managed ETFs

ETFs that allow the fund manager to deviate from the benchmark index, typically resulting in higher expense ratios than passive ETFs.

Negotiable securities

Securities where investors buy from and sell to other investors in the secondary market at market price.

Redeemable securities

Securities, such as mutual funds, where transactions always involve the issuer (sponsor) for buying or cashing out shares.

Inverse ETFs

Funds that provide the opposite return of the index they track; for example, if the S&P 500 goes down $2\%$, the fund goes up $2\%$.

Leveraged ETFs

Funds that provide amplified gains and losses, commonly in $200\%$ or $300\%$ targets (e.g., $2\times$ or $3\times$ the index move).

Sophisticated investor

An investor with the market knowledge and high net worth to withstand large losses.

Exchange traded notes (ETNs)

Debt securities structured as an issuer's promise to pay the return of an index, subject to default or credit risk.

Growth fund

A fund that seeks capital appreciation by investing mostly in common stock, convertible preferred stock, or convertible bonds.

Market capitalization

A measure of company size calculated by multiplying $\text{Outstanding shares} \times \text{Current market price per share}$.

Large-cap

A company size category representing a market capitalization of more than $10$ billion.

Mid-cap

A company size category representing a market capitalization between $2$ billion and $10$ billion.

Small-cap

A company size category representing a market capitalization between $300$ million and $2$ billion.

Micro-cap

A company size category representing a market capitalization of less than $300$ million.

Aggressive growth funds

Growth funds with a high risk profile that invest in small-cap companies or volatile, emerging industries.

Growth & income funds (blend funds)

Funds that seek capital appreciation while investing in income-producing securities like preferred stock and dividend-paying common stock.

Balanced funds

Funds that aim for an even mix between growth and income by investing specifically in both stocks and bonds.

Income funds

Conservative funds that focus on producing current income rather than capital appreciation, investing in bonds, preferred stock, or dividend-paying common stock.

High yield bond funds

Funds that invest in riskier "junk" bonds to provide higher yields.

Asset allocation funds

Funds that invest across asset classes, such as a $60\%$ stock and $40\%$ bond mix, based on a specific strategy.

Life cycle funds (target date funds)

Funds designed to adjust allocation from aggressive to conservative as an investor approaches a specific year, such as retirement.

Money market funds

Low-risk, low-yield income funds that invest in short-term debt instruments with one year or less to maturity, typically priced at $1.00$ per share.

Specialized funds (sector funds)

Funds that focus on a particular industry (like biotechnology) or geographic region (like Japan).

Index funds

Passive funds that aim to match the return of a specific list of securities, such as the S&P 500, as closely as possible.