What are baskets of securities that are constructed like mutual funds but traded like individual stocks on an exchange?

Exchange-traded funds (ETFs) are designed to provide the diversification benefits of mutual funds while being traded on an exchange like individual stocks. This dual functionality allows investors to buy and sell shares of ETFs throughout the trading day at market prices, similar to how they would trade stocks.

The construction of ETFs often involves a basket of securities that can include stocks, bonds, or commodities, and these are managed to track the performance of a specific index or sector. This means investors can gain exposure to a wider array of investments in a single transaction. The liquidity and trading flexibility offered by ETFs appeal to many investors looking for a simpler and more dynamic way to manage their portfolios.

Investors often prefer ETFs over mutual funds for their lower fees and tax efficiency, as they typically generate fewer capital gains distributions due to their unique structure and how shares are created and redeemed. This allows for a more optimized investment experience in the context of trading and management.

Other options such as hedge funds, private equity funds, and real estate investment trusts (REITs) do not share the same trading characteristics or structures as ETFs. Hedge funds usually have more restrictive investor requirements and do not trade on exchanges, private equity funds invest directly in private companies and require a longer-term commitment,