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Why Exchange Traded Funds?
Precision. Strategy. Control.

Exchange Traded Funds are increasingly popular with investors and financial advisors and are among the fastest growing investment vehicles today. This overview is provided to help investors better understand these funds.

An Exchange Traded Fund (ETF)* is a "basket" of securities designed to track a financial market index. A market index measures the value of a group of securities, assets or other financial instruments within a financial marketplace. Common examples include the Dow Jones Industrial Average composed of 30 stocks and the S&P 500 index composed of 500 stocks. The purpose of a financial index is to provide a measure of performance for the financial market it tracks. The purpose of an ETF is to provide an efficient, low-cost means to create a professionally managed portfolio that closely replicates an underlying index, which is not managed and is not available for direct investment.

The first U.S. ETF was launched in 1993. Today there are hundreds of ETFs to choose from, tracking indices composed of stocks, bonds, commodities, real estate and currencies. ETFs are hybrid products that provide the diversification of index mutual funds but trade like stocks. Similar to mutual funds, ETFs are offered by prospectuses which disclose fees and expenses. Unlike mutual funds, an ETF may be traded throughout the day. An investor may use sophisticated trade execution instructions such as stop and limit orders. An ETF may be sold short or purchased on margin and options may be purchased or written for many ETFs as well.

ETFs differ from mutual funds in other important ways. ETFs are transparent investments with most posting all investments held daily, whereas the majority of mutual funds only post holdings quarterly. ETFs have low expense ratios. There are also no sales charges when buying and selling ETFs; you pay your broker the same commission that you’d pay on any regular equity trade.

ETFs have more control for tax purposes than mutual funds. Capital gains or losses occur when the investor sells his/her shares of an ETF, not when others sell. An investor in mutual funds can have capital gains or losses triggered by the redemptions of other investors in the mutual fund.

ETFs provide investors access to asset classes traditionally difficult to obtain. An investor with a common equity trading account can buy and sell ETFs which track commodities, currencies and foreign equity and debt markets. Mainstream investors have not traditionally participated in these markets due to a number of factors including market complexities, regulatory requirements and prohibitive transaction costs which effectively create barriers to entry for the average investor.

*An ETF, like any other type of investment company, will have a prospectus. All investors who purchase shares of an ETF will receive either a prospectus or a document known as a "Product Description," which summarizes key information about the ETF and explains how to obtain a prospectus. Before purchasing ETF shares, you should carefully read all of an ETF’s available information, including its prospectus.

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Copyright 2014 Medical Professionals Financial Group. Securities and advisory services offered through Independent Financial Group, LLC (IFG), a registered broker-dealer and investment advisor. Member FINRA/SIPC. IFG and MPFG are not affiliated entities.