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ETFs

What are ETFs …

                ETF stands for exchanged-traded fund.  They are an investment vehicle traded on the stock exchange.  ETFs are basically a basket of assets that trade approximately at the same price as the net asset value of its underlying assets.

There are some neat characteristics to ETFs.  They behave similar to mutual funds because they provide easy diversification, tax efficiencies and low expense.  At the same time, they are traded like stocks with limit orders, you can short an ETF and they even have options.  The low costs associated with ETFs are due to the fact that they aren’t actively managed and are separated from the cost of having to buy and sell securities to fulfill purchases and redemptions.   ETFs can be bought or sold at any time during the trading day at a current market rate unlike mutual funds.  There are some tax efficiencies to ETFs.  ETFs provide a fast and easy way to rebalance a portfolio, diversify or obtain exposure to a sector.  Because the basket of underlying assets is known, they have great transparency. 

 

Varieties of ETFs.

Actively managed ETFs are ETFs that are managed and fully transparent. 

Bonds ETFs are made of (you guessed it!) bonds.  Bond ETFs in particularly are thriving during today’s depression because it gives the trader or investor the ability to have the security of a bond with the flexibility of a stock.

Commodity ETFs are ETFs that invest in commodities.  They are also referred to as ETCs or exchange traded commodities.

Currency ETFs are made of…well, you get it…

Hedge Fund ETFs are ETFs that track a particular Hedge Funds asset.

Leveraged ETFs are ETFs designed to accentuate the move of the mark and increase its return.  (Be aware, what is good for making money fast is also good for losing money even faster).

Index ETFs are ETFs that are made of a basket of assets designed to replicate the performance of a stock market index.

 

More to come