Basic Concepts5 分钟阅读

What Is an ETF — a Fund You Buy on an Exchange

What do you get if you combine "a fund's diversification" with "a stock's real-time trading"? That's the ETF.

An ETF = a Fund You Trade Like a Stock

ETF stands for "Exchange-Traded Fund." As the name says, it means a "Fund that is listed and Traded on an Exchange."

Inside, it's a fund. Buying one contains dozens to hundreds of stocks within it, so it's automatically diversified.

But the way you buy and sell is the same as a stock. While the exchange is open, you can buy and sell right away at the real-time market price whenever you want.

An ETF is diversified like a mutual fund but traded in real time on an exchange during market hours like a stock. (Source: U.S. SEC Investor.gov, Vanguard)

How Does It Differ from a Fund — the Key Is "How the Price Is Set"

The biggest difference between an ordinary fund and an ETF is "when and at what price it trades."

An ordinary fund is bought and sold only at the NAV set once a day. Even if you place an order this morning, it is processed at that day's closing basis.

An ETF can be bought and sold at real-time prices throughout the trading day, like a stock. You can buy it immediately at the price shown on the screen right now.

Also, ETFs often simply track an index (e.g., KOSPI 200, S&P 500), so their management fees tend to be lower than those of active funds.

The History of ETFs: 1993 in the U.S., 2002 in Korea

The world's first listed ETF was the "SPDR S&P 500 ETF (ticker SPY)," which came out in the U.S. in January 1993. It was an innovation that made the entire S&P 500 index tradable like a single stock, born from the search for better investment vehicles after the 1987 crash.

Korea's first ETF was "KODEX 200," listed about 9 years later on October 14, 2002. A product tracking the KOSPI 200 index, it became the starting point of the domestic ETF market.

Today, a wide variety of ETFs are listed, covering not only stock indices but also bonds, gold, commodities, and overseas markets.

SPY was listed in the U.S. on 1993-01-22 (State Street, AMEX), and Korea's KODEX 200 was listed on 2002-10-14 (tracking KOSPI 200). (Source: State Street official, Yahoo Finance / Edaily Market-in, The Fair — each cross-checked across 2 sources)

Convenient, but the Risk Stays the Same

An ETF is a convenient tool for diversifying a small amount across the whole market, but it is not magic that makes risk disappear.

An index-tracking ETF reflects that drawdown as is when the market crashes. For example, if an index falls -30%, an ETF tracking that index falls by a similar amount. Diversification only reduces the "risk of one stock going under"; it cannot prevent a "fall of the whole market."

Also, ETFs have a management fee (total expense), and buying and selling incur the bid-ask spread and transaction costs. For an overseas ETF, exchange rate fluctuations also affect the return.

This article does not recommend any specific ETF. Even when diversified, you cannot avoid the maximum drawdown and loss duration of the whole market.

常见问题

Q. Does buying just one ETF give me diversification?

Yes. For example, one share of an ETF tracking the KOSPI 200 or the S&P 500 already contains hundreds of companies, so individual-stock risk is greatly reduced compared with buying just one company. However, the "risk of the whole market falling" still remains.

Q. Which is better, an ETF or a fund?

It depends on your situation. If you want real-time trading and low fees, an ETF may fit; if you want to set up automatic recurring investing and leave it without worry, an ordinary fund may be convenient. Either way, it is important to first check the "total expense" and "the drawdown you can withstand."