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Question

What are Exchange-traded funds (ETFs)?

Answer

Exchange Traded Funds, otherwise known as ETFs, are funds which are listed and traded on a stock exchange.  ETFs are closed-end investment funds that seek to provide the return of a specific benchmark or index. 

Designed to track the performance of a benchmark like the FTSE 100 or S&P 500, ETFs combine the diversification of a fund, with the flexibility of a share (live pricing, ease of access and continuous dealing during market hours) making them flexible low cost additions to your portfolio.

ETFs have been used by institutional investors since the 1990’s, but more recently have been listed on the London Stock Exchange (LSE) and have been available to retail investors.  This is a dynamic, growing market and new ETFs are regularly being issued.  The European market totals US$142bn in over 632 funds, the US market totals US$497bn in over 698 funds.  The global market is forecast to grow to over US$2 trillion by 2011.

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