Question

Regarding ETFs, which of the following statements is TRUE?

A. ETFs are considered hedge funds by the SEC.
B. ETFs may only hold equity positions.
C. ETFs grow tax-deferred.
D. Typically, ETFs may be sold short.

Answer 1

The correct statement about ETFs is that they may be sold short. ETFs are exchange-traded funds that can hold various types of investments and are not tax-deferred like some other investment vehicles. The correct option is D.

Step-by-step explanation:

Regarding ETFs, the true statement is that typically, ETFs may be sold short. Unlike hedge funds, which are managed investment schemes that aim for high returns and are regulated differently, ETFs are structured to be traded on stock exchanges much like individual stocks.

ETFs can hold a variety of investments including stocks, commodities, and bonds, therefore they are not limited to only equity positions. Moreover, ETFs are not tax-deferred; they incur capital gains taxes when the investments held by the ETF are sold at a profit inside the fund.

However, they are often considered more tax-efficient than mutual funds due to their unique creation and redemption mechanism.