What is an ETF? An ETF is an exchange traded fund. ETFs are similar to mutual funds in that they invest in a group of stocks or bonds, but they trade during market hours like an individual stock. Different from a mutual fund, ETF investment holdings are completely transparent to investors at the time of purchase. ETFs typically track an index or a benchmark like the S&P 500 Index or the Nasdaq 100 Index. They are a basket of equities that may contain hundreds or thousands of stocks or equities. Mutual funds are valued or priced at the end of market hours each day based on net asset value (NAV), however ETFs are traded throughout the day, based on the current price of the underlying securities.

Kahn Academy compares ETFs with mutual funds and closed-end funds:

Blackrock iShares, Vanguard and State Street control more than 85% of the ETF market with their various ETF offerings. Mutual funds may be managed to track an index, or they can actively select certain stocks and bonds as holdings. When a fund is managed to track an index, it is said to be passively managed. The closer a fund tracks an index, the closer it is to beta. Beta investors, or passive investors are simply aiming to obtain the performance of a given benchmark or index. Outperformance of an active manager versus its given benchmark is called alpha. ETFs provide investors with diversified, transparent, inexpensive exposure to index investment exposure. Investing with ETFs is becoming a staple for most financial advisors, RIAs, brokers, financial planners and direct retail clients. Traditional indexes or benchmarks, like the S&P 500, consist of a group of stocks or equities that track a certain segment of the market. Segments of the market are tracked by indexes based on size (market capitalization), the type of business they’re in (sector), or the business location (U.S., international, emerging markets, country funds, etc.).  Most traditional indexes weigh their holdings based on the size or market cap of its holdings. This is called cap weighting.  Larger companies maintain a larger percentage of the holdings in a cap-weighted index.  If an index equal-weights the holdings, the index is referred to as an alternative beta index. Other names for this include smart beta, scientific beta and strategic beta.  When holdings are not cap-weighted in an index, they are alternative beta indexes.

What are smart beta ETFs?

Smart beta is a term used referring to non-capitalization weighted indexes. A smart beta (alternative beta) index simply means that the index holdings or investments are not capitalization weighted. Since ETFs are considered equities, they must be reported on institutional 13F reports. This means that firms with greater than $100 million in assets under management must report on the ETFs that they own. RIA Database provides 13F data by RIA firm and in aggregate by ETF.