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ETF Education Center

Our Education Center features everything from ETF basics to cutting edge academic and proprietary research that form the basis for IndexIQ's investment philosophy.

ETF Education Center

Our Education Center features everything from ETF basics to cutting edge academic and proprietary research that form the basis for IndexIQ's investment philosophy.

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What is an ETF?

ETFs don't try to "beat" the market, they try to "be" the market.

In the simplest terms, exchange traded funds (ETFs) are funds that attempt to replicate the performance of a particular index instead of outperforming it, like a mutual fund. Meaning, ETFs don’t try to “beat” the market, they try to “be” the market.

Creating a Diversified Portfolio

ETFs help build a diversified, more efficient portfolio.

When it comes to investing, you have a wide array of options to choose from to help you meet your financial objectives—stocks, bonds, and mutual funds being some of the most familiar. ETFs have become an increasingly popular option, and are advantageous in helping an investor build a diversified, more efficient portfolio.

Types of ETFs

Discover the different types of ETFs.

The ETF market includes both broad markets and specific sectors and countries. The majority of funds within the ETF market can be categorized into the following types:

What Do ETFs Provide?

ETFs are designed to increased diversification through broader access.

ETFs can be used to provide low cost2, transparent exposure to various asset classes, regions, sectors, or investment styles as:

Differences Between ETFs and Mutual Funds

While similar in many ways, there are a number of differences.

While ETFs and mutual funds are similar in many ways, there are also a number of differences. ETFs differ from mutual funds in the way they are priced and in the way they trade. They are priced and traded like stocks throughout the day and their share price is driven by the value of the underlying basket of individual securities. Also, ETFs are listed on a national securities exchange—such as the New York Stock Exchange—and are typically traded through a brokerage account.

What is an Authorized Participant?

And why are they so important to the process?

An authorized participant is someone with significant buying power, since it is the authorized participant’s job to acquire all of the securities an ETF wants to hold. For instance, if an ETF is designed to track the S&P 500 Index, the authorized participant needs to buy shares in all the S&P 500 companies in the exact same weights as the Index, then deliver those individual shares to the ETF provider.

ETFs: Lower Expenses and Tax Consequences

Your investments work harder for you instead of someone else.

Lower Expenses Operating expenses are incurred by all managed funds, regardless of the structure. However, ETF operating expenses are more streamlined compared to others. These lower costs are the result of:

1. The S&P 500 Index is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large-cap universe.

2. Like mutual funds, ETFs charge a management fee that is deducted directly from the assets of the fund. Therefore, the investment return of an ETF may be lower than the underlying benchmark index. This fee may be referred to in the prospectus as an “expense ratio,” management fee,” or “investor fee.” A broker’s commission fee is also assessed each time an investor purchases shares in an ETF. It’s important to note that while ETFs do not have some of the administrative costs as similar index mutual funds, they do not always have lower fees.

This material is general in nature and provided solely for educational and informational purposes. It is not meant to provide tax advice. To obtain tax advice on ETFs, consult with your own tax advisor.

All ETFs are subject to market risk, including possible loss of principal. ETF shareholders are subject to risks similar to other pooled investments, such as mutual funds. In addition to general market risks associated with investing in stocks and bonds, there are risks specific to each ETF, which are described in its prospectus. For example, the value of securities held by the ETF may decline. ETFs that hold international investments may involve risk of capital loss from unfavorable fluctuations in currency exchange rates, differences in generally accepted accounting principles, or economic or political instability in other nations. ETFs that invest in the bond market could be hurt by rising interest rates (bond prices and interest rates move in opposite directions).

Alternative investments are speculative, not suitable for all clients, and intended for experienced and sophisticated investors who are willing to bear the high economic risks of the investment.

Fixed-income investments are also subject to credit risk, the risk that the issuer of a bond will fail to pay interest and principal in a timely manner, or that negative perceptions of the issuers ability to make such payments will cause the price of that bond to decline.

MainStay Investments® is a registered service mark and name under which New York Life Investment Management LLC does business. MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment advisory products and services.

Securities are distributed by NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302.

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