Scott Frush - All About Exchange-Traded Funds

All About EXCHANGE-TRADED FUNDS

THE EASY WAY TO GET STARTED

All About Forex Trading
by John Jagerson and S. Wade Hansen

All About Investing in Gold
by John Jagerson and S. Wade Hansen

All About Market Timing, 2nd ed.
by Leslie N. Masonson

All About Short Selling
by Tom Taulli

All About Derivatives, 2nd ed.
by Michael Durbin

All About Market Indicators
by Michael Sincere

All About Dividend Investing, 2nd ed.
by Don Schreiber, Jr., and Gary E. Stroik

All About High-Frequency Trading
by Michael Durbin

All About Asset Allocation, 2nd ed.
by Richard A. Ferri

All About Bonds, Bond Mutual Funds, and Bond ETFs, 3rd ed.
by Esm Faerber

All About Stocks, 3rd ed.
by Esm Faerber

All About Options, 3rd ed.
by Thomas A. McCafferty

All About Index Funds, 2nd ed.
by Richard A. Ferri

All About Investing
by Esm Faerber

All About Six Sigma
by Warren Brussee

All About Technical Analysis
by Constance Brown

All About Hedge Funds
by Robert A. Jaeger

All About Stock Market Strategies
by David A. Brown and Kassandra Bentley

All About Futures, 2nd ed.
by Russell R. Wasendorf

THE EASY WAY TO GET STARTED

SCOTT PAUL FRUSH, CFA, CFP

Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Printed in the United States of America. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a data base or retrieval system, without the prior written permission of the publisher.

ISBN: 978-0-07-177012-5
MHID: 0-07-177012-7

The material in this eBook also appears in the print version of this title: ISBN: 978-0-07-177011-8, MHID: 0-07-177011-9.

All trademarks are trademarks of their respective owners. Rather than put a trademark symbol after every occurrence of a trademarked name, we use names in an editorial fashion only, and to the benefit of the trademark owner, with no intention of infringement of the trademark. Where such designations appear in this book, they have been printed with initial caps.

McGraw-Hill eBooks are available at special quantity discounts to use as premiums and sales promotions, or for use in corporate training programs. To contact a representative please e-mail us at bulksales@mcgraw-hill.com.

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that neither the author nor the publisher is engaged in rendering legal, accounting, securities trading, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.

From a Declaration of Principles Jointly Adopted by
a Committee of the American Bar Association and
a Committee of Publishers and Associations

Trademarks: McGraw-Hill, the McGraw-Hill Publishing logo, All About, and related trade dress are trademarks or registered trademarks of The McGraw-Hill Companies and/or its affiliates in the United States and other countries and may not be used without written permission. All other trademarks are the property of their respective owners. The McGraw-Hill Companies is not associated with any product or vendor mentioned in this book.

TERMS OF USE

This is a copyrighted work and The McGraw-Hill Companies, Inc. (McGraw-Hill) and its licensors reserve all rights in and to the work. Use of this work is subject to these terms. Except as permitted under the Copyright Act of 1976 and the right to store and retrieve one copy of the work, you may not decompile, disassemble, reverse engineer, reproduce, modify, create derivative works based upon, transmit, distribute, disseminate, sell, publish or sublicense the work or any part of it without McGraw-Hills prior consent. You may use the work for your own noncommercial and personal use; any other use of the work is strictly prohibited. Your right to use the work may be terminated if you fail to comply with these terms.

THE WORK IS PROVIDED AS IS. McGRAW-HILL AND ITS LICENSORS MAKE NO GUARANTEES OR WARRANTIES AS TO THE ACCURACY, ADEQUACY OR COMPLETENESS OF OR RESULTS TO BE OBTAINED FROM USING THE WORK, INCLUDING ANY INFORMATION THAT CAN BE ACCESSED THROUGH THE WORK VIA HYPERLINK OR OTHERWISE, AND EXPRESSLY DISCLAIM ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. McGraw-Hill and its licensors do not warrant or guarantee that the functions contained in the work will meet your requirements or that its operation will be uninterrupted or error free. Neither McGraw-Hill nor its licensors shall be liable to you or anyone else for any inaccuracy, error or omission, regardless of cause, in the work or for any damages resulting therefrom. McGraw-Hill has no responsibility for the content of any information accessed through the work. Under no circumstances shall McGraw-Hill and/or its licensors be liable for any indirect, incidental, special, punitive, consequential or similar damages that result from the use of or inability to use the work, even if any of them has been advised of the possibility of such damages. This limitation of liability shall apply to any claim or cause whatsoever whether such claim or cause arises in contract, tort or otherwise.

To my daughter, Gabriella, and son, Ryan

CONTENTS

Chapter 1
Getting Started: A Primer on Exchange-Traded Funds

Chapter 2
History and Milestones: The ABCs of the ETF Revolution

Chapter 3
Advantages and Drawbacks: Making the Case for ETFs

Chapter 4
Underlying Indexes: The Benchmarks and Strategies That ETFs Track

Chapter 5
Internal Workings: The Technical Features of ETFs

Chapter 6
Regulations and Issuance: Bringing an ETF to Market

Chapter 7
Players and Participants: The Whos Who of All Things ETFs

Chapter 8
Broad-Based ETFs: Spiders, Diamonds, and Cubes, Oh, My!

Chapter 9
Sector and Industry ETFs: From Basic Materials to Utilities

Chapter 10
Fixed-Income ETFs: Bonding With Corporates, Municipals, Treasuries, and More

Chapter 11
Global ETFs: Country, Region, Style, and Broad-Market Opportunities

Chapter 12
Real Asset ETFs: The REIT Moves With Commodities and Currencies

Chapter 13
Specialty ETFs: Leveraged, Inverse, and Long-Short Funds

Chapter 14
Risk and Return: Fundamentals of Investing 101

Chapter 15
Asset Allocation: An All-Important Overview

Chapter 16
Leading Misconceptions: Separating ETF Fact From Fiction

Chapter 17
Traditional Portfolios: ETF Models Based on Life Cycle and Risk Profile

Chapter 18