An ETF, or an Exchange Traded Fund, is an index-tracking investment vehicle listed on a major exchange. Indices are composed of asset classes, such as stocks or bonds, in a particular segment of the market, such as technology, energy, or real estate. ETFs are funds that are traded like stocks, but have the diversified portfolio structures of a mutual fund. ETFs provide passive exposure to any asset class by mirroring the returns of an index. For example, the SPDR SPY S&P500 is an ETF that tracks the performance of the S&P500.
ETFs offer diversification, higher liquidity than individual securities, and lower fees.