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Chapter 21. Exchange-Traded Funds

We start with the alternative that probably is best known to investors because of the press coverage it has received. Many investors have no doubt heard specific ETFs talked about, such as Spiders and Qubes, without realizing they are ETFs and without knowing exactly how they work.

An ETF is a hybrid security, part index fund and part stock. It resembles an index mutual fund, but trades like a stock, primarily (to date) on the American Stock Exchange. In effect, it is a new form of index fund, tracking some sector or index or investing theme, that trades on an exchange like a stock.


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