ETF EDUCATION CENTRE

Who makes the ETFs? Who runs them? And which are the ones I should know about?

In Canada, there are three firms that create and manage ETFs. Barclays Global Investors is the dominant player in the ETF market, controlling $15.40-billion in assets over 28 different funds under its iShares brand. The other two companies are Claymore Investments and Horizons BetaPro. As of the first quarter of 2008, they both control $800-million in assets and manage 35 and 12 funds respectively. In the US, dozens of firms manage ETFs, with the largest players being Barclays and State Street Funds Management.

What exactly do these companies do? For the most part, they build funds that mirror the major indexes. Think of the names you hear in the daily news - S&P/TSX composite index, Dow Jones Industrial Average, S&P 500 index, Nasdaq composite - they've got an ETF for every one of them. They also have ETFs for sector-specific indexes like energy, technology and consumer staples. However, the funds that track the broad indexes remain the most popular ETFs.

The largest ETF in Canada is the iShares Large Cap 60 Index Fund (XIU/TSX), or more commonly referred to as the i60s and holds $8.6-billion worth of assets. This ETF follows the S&P/TSX 60 index which traces the stock movements of Canada's sixty largest publicly traded companies - Royal Bank of Canada and Research in Motion are among the top five holdings. The iShares Canada Bond Index Fund (XIB/TSX), which mirrors the Scotia Capital Universe Bond Index, is also a popular fund and includes both government and top-grade corporate bonds. Of the ETFs that focus on industry sectors, the most popular are the iShares Canadian Financial Sector Index Fund and the iShares Canadian Energy Sector Index Fund.

ETFs also allow you to invest outside of the country without ever having to convert your money. Barclays has an iShares ETF that tracks the S&P 500 index (XSP/TSX) and another ETF that replicates the Morgan Stanley Capital International Europe Australasia Far East index, which essentially is the cumulative benchmark that monitors all major markets outside of North America.

In the U.S., the most popular ETF is the Standard & Poor's 500 Index Depository Receipts (SPY/AMEX). Commonly referred to as Spiders, the fund takes its cue from the S&P 500 index, is managed by State Street and holds $84.9-billion in assets. Also commonly traded is Nasdaq-100 Index Tracking Stock (QQQ/AMEX), which does exactly as its title suggests - it follows the 100 largest companies listed on the tech-heavy Nasdaq Stock Market.

If ETFs are for you, get to know these names. They are the largest ETFs out there and can be used the as the cornerstones of your portfolio.