Popular ETFs

Spiders

These are shares in a diversified portfolio representing the S&P 500 Index, and were created in early 1993. They allow investors to purchase shares of "the market," in this case the S&P 500 Index, arguably the most important measure of the market in the United States when it comes to large, well-known common stocks.

Spiders pay quarterly cash dividends and provide investment results that typically correspond to the underlying index. Typically, there are no capital gains distributions. The expense ratio is 0.12 percent. The stock symbol is SPY.

Midcap Spiders are also available, designed to track S&P's Midcap 400 Index. These shares not only pay dividends but in some years have experienced both long-term and short-term capital gains. For example, in 1999 short-term capital gains were $1.63 per share, and long-term capital gains were $0.37, for a total of $2.00 per share. The expense ratio for the Midcap Spiders is 0.25 percent. The stock symbol is MDY.

Diamonds

Diamonds are designed to provide investment results that correspond to the price and yield performance of the Dow Jones Industrial Average, which consists of 30 large stocks, generally thought of as blue-chip stocks.

Diamonds have been available since early 1998. The expense ratio is 0.18 percent, and the stock symbol is DIA.

Diamonds have made no capital gains distributions. Dividend distributions were $1.35 in 1998, $1.73 in 1999, $1.57 in 2000, and $1.56 in 2001.

Qubes

This ETF is designed to provide investment results that correspond to the performance of the Nasdaq-100 Index. Available since March 1999, the shares have made no distributions of any kind. The expense ratio is 0.20 percent, and the stock symbol is QQQ.

Qubes have been quite popular with investors in recent years because they offer a quick and efficient way to invest in a popular segment of the Nasdaq market.

Vanguard Index Participation Equity Receipts (Vipers)

This is the only exchange-traded fund that mirrors the so-called Wilshire 5000 Index (which actually measures about 7,000 stocks). Therefore, Vipers provide the broadest exposure to U.S. equity markets.

The Vanguard Company is known for its low operating costs for shareholders. Vipers have an expense ratio of 0.15 percent, which is actually 0.05 percent lower than the charges on Vanguard's Total Stock Market Index fund—the model used to create Vipers. New investors buy these shares through a broker, but existing Vanguard clients can convert to ETF shares.

iShares (Barclays Global Investors)

Barclays Global Investors, the world's largest institutional investment manager, created iShares. Currently, there are more than 70 funds in this group covering the equity markets in almost every conceivable manner—specific markets, countries, industry sectors, or market capitalization size.

Investors can buy iShares, or index stocks, on indexes created by Standard & Poor's, Dow Jones, Nasdaq, Morgan Stanley Capital International, and so forth. As one example, the iShares Dow Jones U.S. Total Market Index Fund consists of approximately 1,700 companies spanning 10 different individual sectors. These stocks represent about 95 percent of total U.S. market capitalization. Thus, an investor buying these iShares accomplishes great diversification with one transaction, and with shares that can be bought and sold whenever the market is open.