Different types of ETFs
ETF stands for Exchange Traded Fund. So, what exactly does an ETF do? An ETF is a group of stocks that you can trade during regular trading hours. There are numerous types of ETFs from which you can choose.
Sector ETF’s average about 20-30 stocks in the same industry across the globe and offer even more diversification than pure equity stock options. Examples of sector funds include consumer retail, healthcare, financial services, technology, small-cap growth etc. These are suitable to investors who have loads of cash on hand looking to invest but are unsure which companies to invest in. This is due to a lack of knowledge about the industry.
These are some of the more popular ETF’s that are on the market. They average hundreds of stocks from countries across the globe, including US companies. These are suitable for investors looking to diversify their portfolios with global exposure. Suppose you’re an American investor looking to go abroad but do not wish to put all your eggs in one basket. In that case, these types of funds are an excellent way to explore new markets and make sure your money is spread out evenly throughout various regions.
Fixed income ETFs
These funds allow people who invest with cash set aside for future expenses like college tuition or retirement to purchase bonds instead of individual bonds. As a result, time and money are saved from going out and purchasing your bonds. Other types of ETFs give you interest by lending your money to “blockers”.
These funds offer a way for investors to invest in the commodity market without actually buying the physical good. These funds are helpful for those looking to make future bets on commodities like currencies, precious metals/stones, energy supplies etc.
Equity sector leaders ETFs
Also known as “thematic” or “trend-following” ETFs, these types of funds typically average about 30 stocks from approximately eight different industries. They’re mainly focused on technology companies that have been leading the market in their respective areas. For example, healthcare companies within the biotech industry, tech companies changing the way we all live our lives etc. These are suitable for investors looking to learn more about different technologies and invest in the ones they like most before taking off in sales and popularity.
These types of funds increase the magnitude of the gains and losses in your portfolio. The fund can double your returns and your risk simultaneously, so it’s essential to understand how these types of funds work before purchasing them. It’s best to use them when you need returns quickly to make up for losses.
Also known as “short” positions, these funds are the exact opposite of their corresponding index. For example: if an ETF is supposed to track the index and it goes down by 1%, the short position will go up by 1%. These are suitable for investors looking to profit off of market crashes or bear markets. However, it’s essential to understand that this type of investment strategy only works in theory at small scales; you could lose 100% of your money if you used it on a large scale, like during the 2008 financial crisis.
Similarities of the different types of ETFs
All ETFs invest in a large number of stocks. They make the process of buying and selling stock much more straightforward for investors because they can buy and sell an entire basket of securities instead of individual shares. It’s also easy to shift money around to different sectors within your portfolio using these funds. ETFs are also very liquid, meaning that they’re easily traded on major exchanges.
ETFs offer even greater diversification than traditional stock options by allowing you to get exposure to new markets or sectors with just one purchase instead of having to research hundreds of companies individually. With over 1,000 types of funds on the market right now, it’s important not to hop into them without doing your due diligence. The most important thing with these funds is to make sure you know what you’re getting into before purchasing a product.