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ETF (Exchange-Traded Fund)

An ETF is a fund tracking an index or basket of assets that trades intraday on an exchange like a stock. An exchange-traded fund combines the diversification of a classic mutual fund with the trading convenience of a stock.
Contents
  1. 1.Key points
  2. 2.Formula / calculation
  3. 3.Interpretation
  4. 4.Pitfalls
  5. 5.Frequently asked questions

Key points

  • It is usually passively managed and aims to replicate an index (BIST 30, S&P 500, gold) at a low management fee.
  • ETFs suit investors wanting broad market exposure at low cost with intraday liquidity.
  • thinly traded ETFs can have wide bid-ask spreads and prices can drift from NAV.

Formula / calculation

the ETF price forms intraday by supply and demand but stays close to net asset value thanks to arbitrage by authorised participants. Tracking error = ETF return − Index return; in a good ETF this gap equals the management fee.

Interpretation

In Türkiye there are ETFs listed on BIST and funds investing in foreign ETFs.

ETFs suit investors wanting broad market exposure at low cost with intraday liquidity. They are used for long-term index investing and sector or country rotation.

Pitfalls

thinly traded ETFs can have wide bid-ask spreads and prices can drift from NAV. Leveraged and inverse ETFs target daily returns and produce unexpected results over long periods. FX and tax differences must be considered for foreign ETFs.

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Frequently asked questions

An ETF is a fund tracking an index or basket of assets that trades intraday on an exchange like a stock.

the ETF price forms intraday by supply and demand but stays close to net asset value thanks to arbitrage by authorised participants. Tracking error = ETF return − Index return; in a good ETF this gap equals the management fee.

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