The ETF Dictionary

This dictionary defines many of the most common terms associated with investing in ETFs and other exchange traded products.

52-Week Low/High

An ETF’s 52-week low is the lowest price at which it traded during the prior 52-week period. An ETF’s 52-week high is the highest price at which it traded during the prior 52-week period. The gap between the 52-week high and low can be viewed as a measure of an ETF’s volatility within that prior 52-week period.

Ask Price

An ETF’s ask price is the price that sellers are willing to accept for one ETF share.

Asset Class

In ETF Reference parlance, an ETF’s asset class is the top-level categorization of the universe of ETFs. Asset class refers to the type of securities that an ETF holds, including common stocks and bonds, but also more obscure assets such as alternatives, commodities, preferred stock, real estate, and VIX, as well as inverse and leveraged securities. Multi-asset ETFs have core holdings across multiple asset classes.

Assets

An ETF’s assets are the amount of money held by the ETF. It is calculated by summing the values of all of the ETF’s security holdings plus cash holdings. Assets are a measurement of the size of an ETF, and can be used to compare ETFs against one another. Changes in asset size come in three different forms — inflows (investors buying shares of the ETF), outflows (investors selling shares of the ETF), or price changes in the ETF’s underlying securities.

Benchmark

An ETF’s benchmark is the index that corresponds to the ETF’s objective. For example, the widely used S&P 500 index is typically the benchmark used by U.S. large-cap stock ETFs. An actively managed ETF is measured against its benchmark and seeks to outperform it. An index (passively managed) ETF simply replicates its benchmark.

Bid/Ask Spread

An ETF’s bid/ask spread is the difference between an ETF’s bid and ask prices. It is a measure of an ETF’s liquidity, or how easily it may be bought and sold. For most ETFs, the bid/ask spread is just a few cents.

Bid Price

An ETF’s bid price is the price that buyers are willing to pay for one ETF share.

Capital Gains

An ETF’s capital gains are the net gains incurred annually from selling its holdings and result in taxable income for ETF shareholders. Long-term capital gains result from selling lots held for at least one year. Short-term capital gains (taxed at a higher rate) result from selling lots held for less than one year.

Day Range

An ETF’s day range is the price range at which the ETF traded during a one-day period. It is a measure of an ETF’s volatility within one particular trading day.

Dividend

An ETF’s dividend is the amount of cash distributed per share each year. ETF dividend figures are stated in annual dollar amounts but typically are paid throughout the year, as the ETF’s holdings issue dividend payments.

Exchange Traded Note

An exchange traded note (ETN) is an unsecured, unsubordinated debt security that replicates an underlying benchmark index and is traded on an exchange.

Expense Ratio

An ETF’s expense ratio is the percentage fee on assets charged annually to ETF shareholders by the ETF issuer.

Holdings

An ETF’s holdings are the underlying assets (i.e., stocks, bonds, etc.) that the ETF comprises. The number of holdings varies widely among ETFs, with some holding only a few securities, while others hold thousands.

Holdings, Long

An ETF’s long holdings are the holdings that the fund has long positions in. Most ETFs comprise long holdings exclusively.

Holdings, Short

An ETF’s short holdings are the holdings that the fund has short positions in. Only inverse ETFs hold short positions. The vast majority of ETFs avoid these types of holdings.

Holdings, Total

An ETF’s total holdings figure is equal to long holdings plus short holdings.

Inception Date

An ETF’s inception date is the date on which the fund was first offered. A common time period for performance reporting is “since inception.”

Inverse ETF

An inverse ETF is an ETF that uses financial derivatives to achieve a negative correlation to the underlying index. A decline in the value of the index would result in a gain in the value of an inverse ETF. Such an ETF is sometimes referred to as a bear ETF or short ETF, as it essentially allows its investors to hold short positions.

Issuer

An ETF issuer is the asset management company that offers and manages the ETF.

Leveraged ETF

A leveraged ETF is an ETF that uses leverage to achieve greater than 100 percent exposure to their holdings. Sometimes referred to as “2x” or “3x” funds, these ETFs use debt and financial derivatives to often double or triple the daily returns of the underlying index and are meant to be held only for short periods of time.

Management, Active

Active management is one of two distinct types of ETF investment styles (the other being passive management). An actively managed ETF has one or more ETF managers that actively trade holdings in the fund, as the investment objectives of the ETF and philosophies of ETF management dictate. An actively managed ETF attempts to achieve positive alpha and outperform its benchmark. Within the same asset class, an actively managed ETF will almost always charge a higher expense ratio than a passively managed ETF.

Management, Passive

Passive management is one of two distinct types of ETF investment styles (the other being active management). Unlike an actively managed ETF that attempts to outperform its benchmark index, a passively managed ETF merely replicates its underlying index. For this reason, an ETF of this nature is often referred to as an index ETF.

Return

An ETF’s return is calculated by dividing the price gain by the previous period’s price. It is a measure of an ETF’s performance over a select time period. Frequently used time periods for calculating return include year-to-date (YTD), one-year, five-year, and 10-year. This figure can be used to compare the relative performance of ETFs against one another.

Turnover Ratio

An ETF’s turnover ratio is the percentage of an ETF’s holdings that have been turned over, or replaced, in the last year. It is a measure of how frequently the ETF’s underlying securities are traded and can be used to indicate the tax efficiency of an ETF. Typically, an ETF with a lower turnover ratio will be more tax efficient.

Yield

An ETF’s yield is equal to the percentage of assets that are paid in dividends annually.

Yield, 30-Day SEC

An ETF’s 30-day SEC yield is equal to the dividends and interest paid by the fund to shareholders in the previous 30-day period, according to SEC filings.

Yield, Trailing 12-Month

An ETF’s trailing 12-month yield is equal to the dividends paid by the fund to shareholders in the prior 12-month period.