The ETFdb Library is geared towards new investors and investors who are just getting started with ETFs.
An ETF is an exchange-traded fund. For simplicity’s sake, you can think of it as a mutual fund that trades like a stock. An ETF is bought and sold on an intraday securities exchange and is composed of a basket of securities. Generally, ETFs will trade at (or very close to) the same price of the net asset value of the underlying assets. Most ETFs are index funds that track indices such as the S&P 500, Russell 1000, or MSCI, just to name a few. In 2008 however the Securities and Exchange Commission began authorizing the creation of actively-managed ETFs.
What is an ETF?
An exchange-traded fund is an investment vehicle that trades on an exchange. Like a mutual fund, an ETF is a bundle of securities, but instead of being priced based on net assets at the end of each trading day, ETFs are listed on intraday trading exchanges and can be bought and sold throughout the day. Most ETFs are index funds that passively track a benchmark.
So you’ve decided you want to invest in ETFs due to their many advantages. But now come the questions: Which ETFs should you invest in? How many do you need to invest in to reap the benefits of diversification? How often do I need to buy/sell ETFs? Don’t worry; we’ve got you covered.
Additional ETF Resources
The ETF Database team has scoured the Web to assemble the most informative and important information on ETF investing from various issuers, analysts, and economists. Jump to one of the following categories:
- ETFs 101
- Advanced ETF Investing
- Leveraged and Inverse ETFs
- Emerging Markets ETFs
- ETFs vs. Mutual Funds
- Fixed Income ETF Investing
- Currency ETF Investing
- Commodity ETF Investing
- Enhanced Index ETFs
The Fundamentals of ETFs from WisdomTree.com
Equity ETFs are baskets of investments that represent a diversified group of companies (just like mutual funds). The ETF, however, trades like ordinary stocks on a stock exchange throughout the day. Since the funds generally track an index and trade regularly, they tend to have lower costs than mutual funds and are usually more transparent.
Exploring ETFs from iShares.com
This visual presentation provides an overview of ETFs, including the structure of the products, highlights of index investing, and portfolio strategies.
ETF Basics from Fidelity.com
This feature gives a brief overview of ETFs, including how they work, potential advantages, and risks to be aware of.
De-Mystifying ETF Liquidity—What Does Volume Really Tell You? at egshares.com
Many investors are worried about investing in low-liquidity ETFs, fearing that the small trading volumes will prevent them from being able to sell when the time is right. However, this is an unfounded worry since the authorized participant is contractually obligated to take back the shares as close to the intraday indicative value as possible, which is the value of the basket that is posted every 15 seconds. This allows market makers to be sure that they will be able to sell their shares back to the issuing company. Hopefully, this little known fact will set investors’ minds at ease when investing in low volume ETFs.
Impact Of ETFs On Financial Advisory Industry at SPDRs.com
Thanks to a recent survey of investment professionals, it is clear that ETFs have hit the mainstream. More than 75% of those surveyed said that they use ETFs ‘lightly’ or moderately’ with 12% saying that more than half of their assets are in ETFs. In addition, two-thirds of responders said that ETFs were ‘the most innovative financial product of the past two decades.’
ETFs offer investors a tax-efficient vehicle that is far more efficient than mutual funds. This is due to the structure of ETFs which tend to produce lower turnover and simultaneously limit shareholder redemptions to in-kind transfers. Both turnover and redemptions lead to security sales which tend to trigger a tax event. By limiting these two issues taxes are kept as low as possible for all investors.
Understanding Impact of Changing Market Exposure of Leveraged ETFs from DirexionShares.com
Leveraged ETFs are unique and potentially volatile investments that should be understood clearly before investing. This brochure provides insight into leveraged ETF fund composition and management process and discusses the risks associated with them.
The Effect of Time, Trend, Volatility, and Leverage on Relative Returns from DirexionShares.com
This academic paper by William J. Trainor Jr., Ph.D., CFA at East Tennessee State University, is a study on the effect of time, return trend, volatility, leverage ratio, and the rebalancing period on leverage Exchange Traded Funds’ (ETFs) returns relative to the underlying index.
Understanding Taxable Distributions from DirexionShares.com
In relation to traditional ETFs, leveraged index ETFs are generally less tax efficient due to inherent need for daily rebalancing in response to daily market movements. However, most leveraged ETF investors do not think about distributions the same way investors with a long-term ‘buy-and-hold’ mindset do.
The Universal Effects of Compounding and Leveraged Funds from ProShares.com
This two-page feature discusses the mathematical concepts behind compounding of returns and explains how these principles can impact returns generated by leveraged ETFs.
Components of Leveraged and Inverse Funds from ProShares.com
This feature takes a look under the hood of leveraged and inverse funds, explaining the strategies employed to achieve daily leveraging.
Rebalancing Leveraged and Inverse Fund Positions from ProShares.com
This articles discusses strategies for monitoring and rebalancing positions in leveraged and inverse funds, and explains why such a strategy may be used. For anyone considering a position in leveraged or inverse ETFs for more than one trading session, this piece is a must read.
This resource includes information on emerging markets ETFs, including insights on country classifications, small cap and pure play alternatives, and sector-specific investing.
Why Invest In China? at SPDRs.com
The Chinese economy has weathered the recent economic turmoil very well and its per year GDP growth continues to approach double-digits. This quick rebound is thanks in large part to the Chinese stimulus program which will pump billions into infrastructure projects which will help to decrease transport times and hopefully increase domestic consumption, which remains the long term key for Chinese growth.
Mutual Funds vs. Exchange-Traded Funds at Fool.com
This article breaks down the differences between ETFs and mutual funds from several different perspectives, including dividend differences, trading tactics, and more.
ETFs vs. Mutual Funds at ETFdb.com
This feature highlights five critical differences between ETFs and mutual funds, and announces on clear winner.
Mutual Fund or ETF: Which Is Right For You? at Forbes.com
This article examines the benefits and drawbacks of ETFs and mutual funds, identifying opportunities and potential areas of concern for all types of investors.
The Savvy Investor’s 2-Minute Guide To Fixed Income Investing from iShares.com
There are currently more dollars invested in bonds than equities yet most investors know relatively little about the $29.5 trillion bond market. This is unfortunate because the market has changed greatly with the advent of agency bonds, MBS, and other more exotic instruments which enable investors to lower the volatility of portfolios with assets that are generally uncorrelated to equity markets.
The Investment Case for High-Yield Municipal Bonds from VanEck.com
High-yield munis are often issued by not-for-profit organizations such as hospitals, nursing homes, private colleges and charter schools, working in concert with public authorities, or by lower-rated governmental entities. In addition to offering tax-free income, these securities have relatively low default rates and offer investors a higher return than can be expected from a traditional municipal bond fund.
The Investment Case for Pre-Refunded Municipal Bonds from VanEck.com
The highest credit quality municipal bonds are known as Pre-Refunded issues. These bonds are refinanced by their issuers and remain outstanding in the marketplace. This is accomplished by issuing so-called refunding bonds whose proceeds are used to buy securities that are placed in escrow and dedicated to paying the interest and principal on the original issue. The securities in escrow are generally obligations that are directly issued or unconditionally guaranteed by the U.S. government which helps to lower the risk of the municipal bonds. Due to this securities in escrow, Pre-Refunded muni bonds are often considered the safest municipal bond investment available to investors.
Why Invest In TIPs at SPDRs.com
Like traditional Treasury bonds, TIPS pay coupon interest semi-annually. Unlike traditional Treasury bonds, however, the principal of a TIPS bond moves in parallel with inflation, and is continually adjusted to reflect changes in inflation over the life of the security. As the CPI fluctuates due to inflation, TIPS adjust monthly to reflect those changes. Since inflation rates tend to increase, these adjustments are generally positive, but they could be negative in the event that the CPI declines. These securities allow investors to obtain government bond exposure while keeping an eye on inflation concerns as well.
Muni Bond ETFs: A Match Made in Tax Exempt Heaven at SPDRs.com
Muni Bond ETFs allow investors to preserve their capital and lower their tax bill since most munis are exempt from federal taxes. Muni bond funds also allow investors to achieve greater diversification levels while maintaining higher level of liquidity and transparency than in non ETF bond funds. All SPDR muni bond ETFs are AMT exempt which further helps investors in high tax brackets.
The Case For Currency Income ETFs from WisdomTree.com
Currency income ETFs allow investors to access markets that were once only offered to retail investors and large, multinational banks. One of their greatest strengths is their ability to offer higher yield potential around the globe including three countries that offer rates higher than 3.5%. These funds also tend to be highly uncorrelated to American equities and can provide investors with a way to profit in a falling U.S. dollar environment.
Real Assets: Inflation Protection Solutions with Exchange Traded Products from StateStreetSPDRs.com
Since 1929, the United States has only experienced 6 years of year-over-year deflation with the most recent coming more than 55 years ago. This suggests that investors should be much more worried about inflation rather than deflation as a threat to their portfolios. The best defense against inflation is often real assets which tend to outperform stocks and bonds in a rising inflation environment.
Gold as a Tactical Inflation Hedge and Long-Term Strategic Asset from StateStreetSPDRs.com
Although gold is often seen as an inflation hedge it can be a valuable long-term addition to any portfolio as well. In a comparison of four inflation hedges (gold, the S&P 500, TIPs, and REITs) gold outperformed, posting an annualized real return more than 200 basis points higher than any of the other hedges over a period from 1997 to mid 2009.
Fundamental Index ETFs Investor Guide from InvescoPowerShares.com
Some investors see price and market-capitalization weighted techniques as an outdated way to obtain a portfolio allocation. For these investors, PowerShares recommends considering ‘fundamental weighted indexes’ which use sales, cash flow, book value, and dividends in order to obtain a weighting. They believe that by using multiple metrics a more accurate allocation can be obtained and many of the price bubbles that come with market capitalization weighted funds can be avoided.
Quantitative Strategies ETFs Investor Guide from InvescoPowerShares.com
Quantitative Strategy ETFs seek to use active management strategies in order to accomplish a goal. These funds will either seek to obtain lower levels of volatility or higher returns by using more complicated strategies such as buy/write portfolios or long/short strategies. PowerShares then discusses its wide variety of quantitative strategy funds and what techniques they each use in their attempts to offer investors a better risk/reward profile.