Exchange-traded fund
A fund whose shares trade on an exchange throughout the day. Authorised participants create and redeem shares in kind, which keeps the market price close to net asset value.
Where you will meet it
Exchange-traded fund appears in 19 learning outcomes on the CFA syllabus. A few of them:
- Explain mutual funds and how they differ from other pooled investment vehicles
“Exchange-traded funds also trade on an exchange throughout the day, but authorised participants can create and redeem shares, usually in kind, which keeps price close to NAV and tends to make ETFs tax-efficient.”
- Explain how ETF shares are created and redeemed and what role authorized participants play
“ETF shares are created and redeemed in the primary market by authorised participants, broker-dealers under contract with the sponsor.”
- Contrast the vehicles through which an investor can gain index-based equity exposure
“Pooled vehicles such as index mutual funds and ETFs give diversified exposure at low cost; ETFs trade intraday and their in-kind creation and redemption can make them tax-efficient (notably in the US), while mutual funds deal once a day at net asset value.”
- Explain the routes and vehicles for gaining infrastructure exposure and what each one is suited to
“Listed infrastructure companies, listed funds and ETFs offer liquidity and small ticket sizes but carry stock-market volatility.”
See also
Authorised participant · Net asset value
Practise it
Practise exchange-traded fund until it is automatic: questions that explain every wrong option.
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