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ETFs - European Exchange Traded
Funds
An Index Fund is an investment that
copies the performance of a stock market index, like the S&P 500. If
you purchase all 500 stocks using the same percentages as the index,
you can expect to have performance that is very
close to the index.
Exchange Traded Funds (ETFs) are low cost
index funds that trade like stocks. They offer portfolio exposure to
the world's leading indexes and allow for a diversified, low cost, low
turnover index investment. Instead of purchasing
individual stocks, that is risky and requires knowledge,
experience, and time for stock research, investors purchase ETFs to
reduce the risk of market volatility.
According to the London Stock Exchange, "ETFs
trade like normal shares, allow private investors to spread their investments across a wide range of securities, thus tracking the performance of an entire index, but with a single share" and "The difference — and the great advantage — is that they are not single shares: instead they represent an investment in the collective fortunes of a wide range of different equities. In effect, an entire index in a single share. Anything you might do with a share, you can do with an ETF. But with ETFs you have instant access to a range of different securities, making it easier than ever for you to gain the benefits of spreading your risk across a whole index". The Legal Structure of an ETF is very important. We have Open-End Index Funds that reinvest dividends, Unit Investment Trusts that don't reinvest dividends in the fund, and Grantor Trusts that distribute dividends directly to shareholders. In the USA, according to the SEC, exchange-traded funds are investment companies that are legally classified as open-end companies or Unit Investment Trusts (UITs). In the European Economic Area many ETFs are traded as cross border UCITS iii funds. A UCITS fund can invest up to a 100 per cent of net assets in other UCITS funds. As ETFs become widely used, more indices are being developed to form the basis of new ETFs. To learn more about the UCITS iii directives and the European approach to collective investments you may visit: www.ucits-iii.com and www.ucits-iii-training.com 
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