What are Ishares? by Karla Hopkins

iShares® are a brand of exchange-traded fund (ETF). iShares® are the largest ETF provider in terms of both number of products and amount of assets. Each iShares® ETF tracks a different stock market or bond index. They are designed to emulate the performance that specific index. iShares ® have existed since the 1990s; they were created by Barclay’s Global Investors and are currently owned by the BlackRock Investment Company. iShares ® are intended to be a trading option for investors interested in tracking benchmarks of a type of market as opposed to investing in an individual corporation via stock shares or group of corporations via mutual fund shares.

ETFs are funds that trade like stocks, but contain multiple assets similar to mutual funds. Unlike mutual funds which are bought and sold at a set price once per day, ETFs trade at varying prices throughout the day. Also, iShares® disclose the contents of their portfolios daily, rather than quarterly like mutual funds, which allows investors a greater degree of transparency.

The benefits of iShares® include greater diversification, greater options, lower expense ratios, tax efficiency and increased liquidity. Diversification is intrinsic to each iShare®. For example, if you buy the S&P 500 Index Fund ETF – that particular iShare® owns fractional shares of all 500 companies in the S&P 500 Index. You now have an investment whose performance mirrors that specific index – without making 500 purchases and paying 500 commissions. There are numerous categories of iShares® in which to invest such as: growth, value, industry, sector, international, real estate, fixed income and precious metals. The expense ratios of iShares® are between .09% and .75% - which are significantly lower than mutual fund ratios. There is a tax efficiency built into iShares because they are built on specific indices (such as the Dow Jones Industrial Average) and turnover of the investments comprising the iShare® is virtually non-existent – therefore there are no capital gain distributions with their corresponding taxes. Because they are ETFs, iShares® can be bought and sold throughout the day. You can place market, stop, and limit orders, purchase on margin and sell the security short. These options allow iShares® to offer even more liquidity and be even more flexible than regular index funds.

iShares® - and ETFs in general – should be considered a good supplement to mutual funds, money markets, bonds and CDs as the backbone of a diverse portfolio. While unlikely to skyrocket in value, it is also rare that their value will plummet.