ShmoopTube

00:00

Finance allah shmoop shmoop what are efs Well first this

00:07

is the random financial terms you want to be asked

00:10

in the financial term spelling bee and second you should

00:13

know that e t f stands for exchange traded fund

00:18

f's are kissing cousins of index funds with one key

00:22

subtle but important difference f don't change at least generally

00:26

speaking an index fund might reflect the transportation industry and

00:31

have so much exposure to ford gm united airlines tesla

00:35

etcetera But it's required tohave say sixty five percent of

00:39

its exposure to companies based in the united states in

00:42

its charter every month that index fund has to re

00:46

balanced that exposure So if the auto companies do very

00:49

poorly in a given month index fund has to re

00:53

balance by buying mohr shares of those auto companies to

00:56

make up the difference you know given that they've performed

00:59

poorly relative toa airlines trucking company's railroads jeff howard segways

01:03

and so on But in a t f the fund

01:06

is basically set once and the shares just really kind

01:10

of float if over a decade the auto companies do

01:13

really well then in an e t f the auto

01:16

companies will just have a dominant influence on the overall

01:19

performance of the fund The management company doesn't have to

01:23

buy and sell shares regularly in an e t f

01:25

till fulfill the legal promises it agreed to at the

01:28

outset of the fund in the way in index fund

01:31

re balances its shares by buying and selling them So

01:34

what does that mean to you Well it means that

01:36

fc may drift in given directions like this guy For

01:40

example a generic technology e t f might have had

01:43

a total exposure of say five percent to internet stocks

01:47

in the beginning of nineteen ninety seven but amazon ebay

01:50

yahoo netflix and a well performed massively better than the

01:54

broader technology market which did well but just not omg

01:58

dot com well so that five percent waiting twenty years

02:02

later might be more like fifty percent or mohr of

02:05

that particular e t f but one other key aspect

02:08

of it is that it's traded like a stock i

02:11

e in one block and trade throughout the day there's

02:15

a bid and an ask price The bids are all

02:18

added up and shares in the fund can be bought

02:20

And sold at any time throughout the day Although the

02:23

market sets the price of an f just like it

02:25

does on a stock Well there now you're all ready

02:28

for the financial term spelling bee And they might also

02:31

ask you to spell lipo Yeah you might want to 00:02:33.69 --> [endTime] write that one on your arm

Full Transcript