Investorial

I’ve been participating in a comment thread with Canadian Capitalist about alternative investments. I mentioned an aversion towards ETFs because to what I understand, ETF’s are sort of like derivatives? Though I was hard pressed to find such a definition online.

Investopedia defines Exchange Traded Funds (ETFs) as:

A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange, thus experiencing price changes throughout the day as it is bought and sold.

Because it trades like a stock whose price fluctuates daily, an ETF does not have its net asset value (NAV) calculated every day like a mutual fund does.

Great, now we know what the public knows. Here’s what I don’t know. My question is “What’s the asset backing the ETF’s?” Are there underlying stock? And how can there be such frequent trading and movement of money in and out without triggering (more…)