What is an ETF? | iShares

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What are the benefits of ETFs?

iShares Core ETFs have outperformed more than 75% of their mutual fund peers on average over the past 10 years¹

1/3 the price of a
typical mutual fund²

ETFs are 1/2 the tax cost of a mutual fund

1/2 the tax cost of the
average active mutual fund³

Learn more about why to use ETFs.

Word on the street

We took to the streets of San Francisco and asked people, "What is an exchange traded fund?" In their words, here's what they had to say.

Comparing ETFs and mutual funds

Many investors are familiar with mutual funds. How are ETFs similar?
And what makes them different?

Hover over the icons to learn more.

Learn more about the differences in investment strategy, fees,
and tax implications of ETFs vs mutual funds.

Similarities

Diversification

You get a diversified collection of stocks and/or bonds, which can potentially help reduce risk compared to individual securities.

Professionally managed

The funds are overseen by professional managers.

Risk and reward

The risk profile of an ETF is derived from its underlying holdings, as with mutual funds.

Differences

Cost

ETFs typically cost less than comparable mutual funds (⅓ the cost, on average), and there are no hidden loads or fees. (Your broker may charge a transaction fee, though many iShares ETFs are available commission-free at providers like Fidelity⁴). What’s more, your taxes may be significantly lower: tax costs for iShares ETFs on average are less than ½ those of the average mutual fund³.

Fund performance

Most ETFs seek to closely match the performance of an established stock or bond index, such as the S&P 500 or the Bloomberg Barclays U.S. Aggregate Bond Index. Actively managed mutual funds try to beat the index, which can be hard to do, especially after fees and taxes. iShares Core ETFs have outperformed more than 75% of their mutual fund peers on average over the past 10 years¹.

Buying and selling

As with stocks, you can buy and sell ETFs at the market price whenever the market is open. Mutual fund shares are purchased directly from the fund at Net Asset Value (NAV) and priced once a day after the market closes.

Knowing what you own

Because ETFs usually aim to track an index, their holdings change relatively little over time – without the “style drift” that may surprise mutual fund investors.

Learn more about the differences in investment strategy, fees, and tax implications of ETFs vs mutual funds.

How to use ETFs

Everyone’s investment goals are unique. What outcomes are you targeting?

Build a stronger core

iShares Core ETFs are diversified, low-cost funds designed to help build a strong foundation for your portfolio.

Build Build

Seek income

ETFs can help generate income through bonds, dividend-paying stocks, and preferred stocks.

Seek Seek

Prepare for market turbulence

Minimum volatility ETFs are designed to help reduce risk and keep you invested.

Prepare Prepare

Invest internationally

iShares ETFs offer access to virtually all non-US investable markets, from broad exposures to single countries.

Invest internationally Invest internationally

Act on opportunities

ETFs offer the same trading flexibility as stocks, with added diversification.

Explore Explore

By the numbers

1993
The first ETF was introduced in 1993

1997
iShares has been a leading ETF provider since 1997

3,000,000,000,000
ETFs are now a $3 trillion industry

300+
iShares provides the widest array of ETFs, with 300+ offering

¹ Morningstar, as of 12/31/2017. Post-tax comparison between the 3, 5 and 10 year returns at NAV of the iShares Core ETFs and the oldest share class of active open-end mutual funds within the same Morningstar categories as the iShares Core ETFs. Mutual funds are generally more tax inefficient than ETFs and, as a result, are typically more negatively impacted than ETFs when comparing performance based on post-tax returns rather than total returns. The number of ETFs and mutual funds used for each period varies based on the inception date of the iShares Core ETFs. iShares Core ETFs included in this comparison vary based on the time period analyzed: 3 year (18 Core ETFs existed for the full 3-year period beginning 1/1/15); 5 year (14 Core ETFs existed for the full 5-year period beginning 1/1/13); and 10 year (8 Core ETFs existed for the full 10-year period beginning 1/1/08). iShares Core ETFs outperformed their active mutual fund peers by 84% (1752/2085), 79% (1062/1348) and 89% (498/558) over the 3, 5 and 10 year periods ended 12/31/17, respectively. Performance was averaged for Morningstar categories containing more than one iShares fund, and may be different for other time periods. Returns are calculated after taxes on distributions, including capital gains and dividends, assuming the highest federal tax rate for each type of distribution in effect at the time of the distribution Past performance is no guarantee of future results. For more information on the differences between iShares ETFs and mutual funds, click here.

² Morningstar, as of 12/31/17. Comparison is between the average Prospectus Net Expense Ratio for the iShares ETFs (0.35%) and the oldest share class of active open-end mutual funds (1.14%) with 10-year track records that were available in the U.S. between 1/1/2008 and 12/31/2017.

³ Morningstar, as of 12/31/17. “Tax Cost Ratio” is a Morningstar measure of the impact of taxes on capital gains and income distributions on performance. The average 5-year Tax Cost Ratio of iShares ETFs and actively managed open-end mutual funds available in the U.S. (excluding municipal bond and money market funds) included in the comparison is 0.76% and 1.46%, respectively.

⁴ ETFs are subject to a short-term trading fee by Fidelity, if held less than 30 days. Other conditions and fees may apply. See Fidelity.com/commissions for details. BlackRock is not affiliated with Fidelity or any of their affiliates.

Carefully consider the Funds' investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds' prospectuses or, if available, the summary prospectuses, which may be obtained by visiting the iShares Fund and BlackRock Fund prospectus pages. Read the prospectus carefully before investing.

Investing involves risk, including possible loss of principal.

Fixed income risks include interest-rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in bond values. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments.

International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. These risks often are heightened for investments in emerging/ developing markets or in concentrations of single countries.

There is no guarantee that dividends will be paid.

Transactions in shares of ETFs will result in brokerage commissions and will generate tax consequences. All regulated investment companies are obliged to distribute portfolio gains to shareholders.

Certain traditional mutual funds can also be tax efficient.

Investment comparisons are for illustrative purposes only. To better understand the similarities and differences between investments, including investment objectives, risks, fees and expenses, it is important to read the products' prospectuses.

The strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any strategies discussed will be effective.

The Funds are distributed by BlackRock Investments, LLC (together with its affiliates, "BlackRock").

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