This first of three modules of an updated CFA Institute Research Foundation guide explores the properties, benefits, mechanics, and history of exchange traded funds (ETFs). It describes the factors behind ETF’s exponential growth and evaluates the U.S. ETF landscape.
Overview
This CFA Institute Research Foundation book is the second edition of A Comprehensive Guide to ETFs, first released in 2015. The updated edition reflects the rapid growth and evolution of the exchange-traded funds (ETFs) industry over the past decade. It provides investors and market professionals with the knowledge they need to understand how ETFs work, why they’ve become so widely adopted, and how to use them effectively in today’s dynamic markets.
ETFs have reshaped global investing since their debut in the early 1990s. By the end of 2024 global ETF assets surpassed $11 trillion. ETFs are now an essential tool for investors of all types, from individuals to professional advisors to institutional giants. Packaged in a structure that’s efficient, flexible, and accessible, ETFs offer exposure to nearly every asset class and investment strategy.
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ETFs blend the strengths of mutual funds and individual stocks. Like mutual funds, ETFs allow investors to buy shares in a professionally managed, diversified portfolio. Unlike mutual funds, however, ETF shares trade on stock exchanges throughout the day. This structure brings key benefits, including intraday liquidity, transparent pricing, and access through standard brokerage accounts. Combined with low fees, tax efficiency, and product variety, these features have made ETFs increasingly popular across investor segments.
A key strength of ETFs is their transparency. Most ETFs disclose their full holdings daily, allowing investors to see exactly what they own. This level of visibility — rare in mutual funds — builds investor confidence and supports better portfolio management.
The modern ETF has evolved to offer access to virtually all asset classes, market segments, and investment strategies and to serve a wide range of investors from the longest long-term holder to the most active intraday speculator.
This updated edition has three main sections:
- ETF Product Features and Focus on Fees
- ETF Benefits and Drivers of Growth
- ETFs Bring Risks and Challenges
- Trends in ETF Management Fees
- How ETFs Work
- Creation and Redemption
- Settlement, Clearing, and Short Sales
- US ETF Legal Structures
- Participants in the ETF Ecosystem
- Making Sense of the ETF Landscape
- ETF Applications and Categories of Investors
- ETF Strategies: Scope and Growth
- ETF Issuer Landscape
- ETFs as a Disruptive Invention
To provide historical context, the book includes two appendices:
- Appendix A tracks the development of ETFs, starting from the 1987 stock market crash and leading up to the launch of spot bitcoin ETFs.
- Appendix B presents a timeline of major U.S. ETF milestones from 1989 through 2024, offering a concise history of key industry events.
This module is an essential guide for understanding the structure, use cases, and ongoing evolution of ETFs. Whether you’re a long-term investor building a retirement portfolio, an adviser managing client assets, or a finance professional analyzing markets, this comprehensive resource will equip you with the understanding needed to make informed decisions in the ETF space.