What is an Index ETF?
Like other ETFs, an index ETF is essentially a passive mutual fund -- similar to traditional index funds -- that allows investors to purchase a basket of securities in a single transaction. An index ETF mimics part or all of an external index.
How Does an Index ETF Work?
For example, the iShares Dow Jones Select is an that invests in the 100 contained in the Dow Jones U.S. Select .
ETF are essentially legal claims to underlying held in a trust by the 's creator or authorized participant, which is usually a market maker, specialist or institutional investor. These underlying shares are grouped into creation units, and the shares are fractions of these creation units.
Unlike traditional mutual and back-end loads. In addition, because they are not actively managed, most have minimal expense ratios, making them much more affordable than most other diversified vehicles. Most mutual also have requirements, making them impractical for some investors., have no front- or
Why Does an Index ETF Matter?
Although benchmark the is important because there are a variety of indexes. The Dow Jones U.S. Select Index, for example, selects 100 based on whether and how much the each company has increased its dividends, each 's trading volume over time and a variety of other . Some indexes include smaller companies, and some stick with larger companies; some stocks also appear in more than one dividend-stock . Additionally, many dividend-stock indexes have assets in the same industries because some industries (utilities and financial services, for example) commonly pay dividends.hold the same as their underlying indexes, the selection of the on which to base and