Exchange-traded fund (ETF)

(1)A closed end fund (i.e., with a fixed number of shares) with an active manager responsible for executing a defined investment strategy that is listed on an exchange and traded like a stock.
(2) An open-end modified unit trust or investment company characterized by a dual trading process. Fund shares are created or redeemed in large blocks through the deposit of securities to, or delivery of securities from, the fund´s portfolio. Secondary trading, in lots as small as a single fund share, takes place on a stock exchange. The dual trading process permits (and potential arbitrage requires) the fund shares to trade close to net asset value at all times. Open ETFs trade at prices very close to their current underlying value throughout the trading day and are usually more tax efficient than comparable conventional funds.