Are there different ETFs or just one?

[penninah]

Hi there,

I want to invest in ETFs. I understand they are advantageous since they are made of different asset classes. Does that mean there is only one type of ETF made of different investment vehicles or they are different ETFs? I want to know so that I can decide wisely as I get down to investing in ETFs. Thanks.

[Sam Boughedda]

Hi Penninah

 

There are different etf's available depending on what you want to trade. For example if you wanted to invest in the gold market, you could invest in the SPDR Gold shares (GLD). There is also another etf for tracking S&P 500 stock and loads more. 

[Parker]

 

 

Hi Penninah,

There is a very big number of ETFs. Below we discuss the top six so that you can make an informed decision when investing.

Sector ETFs

They allow you to invest in a particular market sector.  With sector ETFs, you’re less likely to find large tracking errors from the underlying index, thanks to their high level of liquidity. One of the upsides of sector ETF is its pure-play exposure in an attractive industry. That is, when the sector you choose is doing very well, you can fully benefit in it since the poorer performing stocks won’t water down your returns.

Dividend ETFs

They aim to maximize returns from stocks that pay high dividends and may contain only the domestic stocks or be a global dividend ETF. With the emphasis on the less-risky bigger blue-chip firms and on companies that exhibit a strong history of dividend increase, they’re a perfect choice for the risk-averse stock investors looking for income. Though some dividend ETFs aim to maximize the current yield for maximum distribution of income, others emphasize the history of the stock's consistent dividend growth. Also, unlike most ETFs', their expense ratio is generally lower and has no minimum deposit requirements.

Bond ETFs

Bond ETFs allow investors to invest in the bond market and are traded throughout the day on a centralized exchange. Being passively managed and traded, it’s more liquid and transparent during times of stress, promoting market stability. They can be categorized into bond sector ETFs that focus on specific types of bonds such as corporate debt, or broad market ETFs that deal with an entire market. While dividends are treated as either income or capital gains during taxing, their tax efficiency doesn't count much since capital gains—unlike in the stock market—don’t play a big role in bond returns.

 

Currency ETFs

Like in commodity ETFs, currency ETFs allow you to profit on how other currencies values compare to the British Pound. Through managed portfolios, investors get structured investment exposure to the foreign exchange market. Since the currency market is influenced by the ever-fluctuating global economic conditions, political stabilities, and interest rates, currency ETFs often have a higher relative risk. With its foreign exchange market being the largest in the world, it attracts many investors who trade throughout the normal trading hours. 

Commodity ETFs

 They give exposure to the commodity market, targeting specific areas in the market. It’s worth noting that when you purchase a commodity ETF, you don't buy the commodity. That is, they consist of future derivatives that represent the corresponding amount of the commodity. Because they create their benchmark indexes, the broader commodity indexes tend to have tracking errors. Even so, they’re still very popular since investors don’t have to learn how to buy futures or other derivative products to get exposure to commodities.

Inverse ETFs

Inverse ETFs is formed by using various derivatives aimed at helping investors make profit through short selling when there’s a decline in the value of a broad market index or a group of securities. It’s not a long-term investment since the fund’s manager buys and sells the derivative contracts daily.