Exchange Traded Funds
In the last few years, exchange traded funds (ETFs) have won the hearts and assets of Wall Street players. Currently, more than 700 funds are traded on the U.S. exchanges, valued at more than $720 billion.
What They Are: An exchange traded fund is a collection or basket of stocks bought and sold as a single stock on U.S. stock exchanges. Each ETF focuses on a single theme, such as a major stock index, style (growth or value), sector, country, bonds, commodity or currency.
When They Started: In 1993, State Street Global Advisors, a large global money manager, partnered with the Amex to launch the first ETF, the Standard & Poor’s 500 Depository Receipt, or the SPYDR. Since the stock symbol for the SPYDR was SPY, traders nicknamed the stock “the Spiders.”
Benefits to Trading & Investing with ETFs:
- They reduce research time. You can keep up with a major index, like the S&P 500, or the energy index, far more easily than you can keep up with the many stocks within those indices.
- Provide diversity within each share. Each share of an ETF represents an entire index or basket of stocks—so if one company gets hit with bad news, it doesn’t take down the entire group.
- Most ETFs sustain lower expense ratios than mutual funds.
- ETFs earn dividends paid by the underlying stocks.
- Unlike a mutual fund, where shareholders pay capital gains if the portfolio manager sells shares in order to cover redemptions, ETF gains are reported only when profits are finalized.
- Unlike mutual funds, which are priced at the end of each trading day, ETFs undergo continuous pricing, just like stocks.
- ETFs can be easily sold short.
Most Popular ETFs
Dow Diamonds (symbol DIA):Tracks Dow Jones Industrial Average
S&P 500 SPDR (SPY): Tracks S&P 500 Index
PowerShares QQQ (QQQQ): Tracks NASDAQ 100 Index
Toni’s Published Articles that Target ETFs:
Stay in Touch with Your ETF Position By Trading its Top Holding - July 16, 2009
Trade Leveraged and Inverse ETFs with More Precision - July 9, 2009
Two Indicators to Help You Predict Market Bottoms - December 4, 2008
Profit with Focused Exchange Traded Funds - September 24, 2008
3 Funds to Help You Battle the Bears - July 9, 2008
How to Leverage Your Trading Dollars with Ultra ETFs - March 2008
How to Use Inverse ETFs for Profit and to Hedge - March 3, 2008
PowerShares ETFs Make Great Trading and Investing Tools - May 15, 2008
Where to Find ETFs: ETFs are grouped into fund families. Below you will find major fund families, their focus, and website addresses.
- BLDRS. Focus: International Equities funds based on The Bank of New York ADR Index. Managed by the PowerShares. Visit www.powershares.com/bldrs/
- HOLDRS (Holding Company Depository Receipts). Focus: Sectors and industry groups. Managed by Merrill Lynch. Visit www.holdrs.com
- iSHARES. Focus: Market Cap, Value/Growth, Sector/Industry Groups, International, Real Estate, Fixed Income and Commodities. Managed by Barclays Global Investors Services. Visit www.ishares.com
- Market Vectors. Focus: Agriculture, coal, gold, steel, nuclear, Russia. Managed by Van Eck Securities Corp. Visit www.vaneck.com
- PowerShares. Focus: Market Cap, Sectors/Industry Groups, Equity Income and International. Managed by PowerShares Capital Management LLC. Visit www.powershares.com
- ProShares. Focus: Sell short the Dow, S & P 500, NASDAQ 100, S & P Midcap 400 or Russell 2000 by buying these shares. Great for managing risk in IRAs, where short-selling is prohibited. Several index shares also magnify moves in uptrending markets. Managed by ProShares Group. Visit www.proshares.com
- Rydex. Focus: Broad Index, Growth/Value, and Sectors. Managed by Rydex Global Advisors. Visit www.rydexfunds.com
- SPDRs. Focus: S & P 500 (SPY) and nine Sector SPDRS. Managed by State Street Global Advisors. Visit www.sectorspdr.com
- SSgA. Focus: Dow Diamonds (DIA), International, Growth/Value, Sectors/Industry Groups, Market Cap, and Specialty. Managed by State Street Global Advisors. Visit www.ssgafunds.com
- Vanguard VIPERS. Focus: Growth/Value, Dividend, Market Cap, Sectors, and International. Managed by the Vanguard Group. Visit www.vanguard.com
- Wisdom Tree Focus: Market Cap, Dividend, International Market Cap, International Dividends, and International Sectors. Managed by Wisdom Tree Investments. Visit www.wisdomtree.com
ETF traders and investors, please take note: Trading ETFs successfully is can be a challenging undertaking—and it’s not always “a walk in the park.” To keep your losses low and profits high, please learn what ETFs are, and exactly how they work before you take a position. On ToniTurner.com, we provide you with tools that will give you the techniques and strategies you need to trade and invest with ETFs with minimum risk and maximum gains!