ETFs Glossary

Closed-end fund: A type of mutual fund. Like ETFs, closed-end funds differ from open-end mutual funds in that they trade throughout the day over an exchange. Unlike ETFs, however, they have no mechanism to prevent them from trading at substantial premiums or discounts to their net asset values.

Closet index fund: An active fund with higher fees that actually tracks an index fairly closely.

Commission: The fee you pay a broker to buy or sell a security, such as a stock or an ETF, for your account. The charge is typically assessed on a per-trade basis. You do not need to pay a commission to buy or sell no-load, open-end mutual funds, giving them a cost-advantage over ETFs for investors who plan to invest regular sums of money or who trade frequently.

Commodity indexes: Indexes that measure either the price or performance of physical commodities, or the price of commodities as represented by the price of futures contracts listed on the commodity exchanges.

Contrarian: Describes an investor that believes and does the exact opposite of what the majority of investors are doing at any given moment. For example, contrarians might perceive value in a stock or index that is out of favor, or has performed poorly. Whereas most investors would avoid an out of favor investment, contrarians would buy it in hopes of a turn around or change in market sentiment.

Creation unit: The smallest block of ETF shares that can be bought or sold from the fund company at net asset value, usually 50,000. These are only bought and sold "in-kind." For example, when you sell one, you receive a portfolio of securities that approximates the ETF's holdings, not cash. Creation units' size means that only market makers and institutions can afford to buy or sell them. All other investors can buy or sell ETF shares in any size lot at the market price, rather than at NAV, over an exchange.