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Question

What is the difference between ETFs and ETCs?

Answer

ETFs are, as the name suggests, funds that are listed and traded on a stock exchange.  In general, their purpose is to track the performance of an underlying benchmark, which is usually an equity or fixed income index of some sort, such as the FTSE 100, the S&P 500 or the FTSE UK Gilts All Stocks index.  They are not restricted to tracking indices, for example some may track pre-selected basket of equities, but in general you will find that most ETFs have equity or fixed income indices as their underlying.

ETCs are also products that are listed and traded on a stock exchange, however unlike ETFs, which will generally track equity or fixed income indices, ETCs track commodities, such as metals, natural energy resources, agricultural produce or livestock.  In some cases an ETC will try to directly track the performance of a given commodity, in other cases ETCs will track an index that is designed to measure the value of that commodity.  The second index tracking type of ETC tends to occur in cases where there may be complications in tracking the value of the actual physical commodity itself.

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