What is the primary focus of an index-based ETF?

An index-based ETF primarily aims to replicate the performance of a specific securities index. This means that it is designed to track the movements and price changes of a particular index, such as the S&P 500, by holding the same securities in the same proportions as those in the index.

The investment strategy of index-based ETFs is rooted in passive management, allowing investors to gain exposure to a broad market or specific sector without the need for active management by investment professionals. By mirroring the index, these ETFs provide investors with a diversified portfolio that reflects the overall performance of the market segment or index they are targeting, which can often lead to lower fees compared to actively managed funds.

This passive approach is beneficial for many investors because it typically results in lower turnover and reduced costs associated with buying and selling securities. Therefore, the focus on replicating the index allows investors to capture the overall market returns, making index-based ETFs an attractive investment option for those looking to invest in a cost-effective manner.