CHAPTER 3

Types of Exchange-Traded Portfolios

Exchange-traded funds (ETFs) trade like stocks on stock exchanges. However, you will not find ETF prices in the stock section of the Wall Street Journal. ETF prices are listed in the Money & Investing section of the Journal in their own subsection, appropriately titled Exchange-Traded Portfolios. The term exchange-traded product is used by some research firms, and it is interchangeable with the term exchange-traded portfolio.

The two phrases do make sense because there are different types of exchange-traded securities that have the look and feel of an ETF and are referred to by most people as an ETF, but they are not exchange-traded funds. They are alternatives to ETFs.

Each exchange-traded product type is similar to and different from the others. All types trade on a stock exchange. Most attempt to track the performance of an index, a currency, or a commodity. Each one has an arbitrage mechanism of sorts that keeps the market price of the exchange traded share or units in line with its intraday indicative value.

The difference in each type of exchange-traded product is in how each operates and how it is regulated. Every new exchange-traded portfolio needs Securities and Exchange Commission (SEC) approval before it is made available to the public. Different government regulations will dictate how that security will operate and report results depending on how a security was filed with the SEC. There are regulations covering the types ...

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