One of the many appealing attributes of ETFs is the ability to achieve broad exposure through the purchase of a single ticker, thereby whittling away any company-specific risk that comes with individual stock picking. While the “instant diversification” provided by ETFs and mutual funds can go a long way towards minimizing the impact of a single security on bottom line returns, it is important to note that certain ETFs can still feel the pinch from poor performances out of a single stock.
For starters, not all ETFs are created equal in terms of balance and depth of the underlying portfolios. While some stock ETFs have thousands of individual holdings and don’t assign a weight of more than 1% to any single security, others are more top heavy in a few big names. For example, Exxon Mobil (XOM) accounts for about 19% of the Energy SPDR (XLE), with Chevron making up another 15% or so [try our Free ETF Stock Exposure Tool]. Among international equity ETFs, it isn’t uncommon to allocate more than 10% to an individual stock–generally one that is found in the energy or financial sector. That concentration can obviously translate into material company-specific risk; if the stock in question performs well, it can be good news for the entire fund. If the largest weighting struggles, however, a single name can offset stellar gains from other, smaller components. [click to continue…]
The ETF industry has grown by leaps and bounds over the last five years and innovation across products has brought forth a multitude of previously inaccessible investment strategies to mainstream investors. Aside from the vast expansion in the exchange-traded product universe, the last five years have been nothing short of a roller coaster ride. Global [...]
The past week was yet another choppy one in the markets as European events continued to dominate headlines. Generally speaking, however, it was a pretty solid period for broad stocks as the S&P 500 added nearly 6% in the time period, helping to reverse much of the recent losses in the market. This sharp turnaround [...]
Stocks climbed higher on Wednesday as uncertainty over the fate of the euro zone appears to have seemingly disappeared from the market this week. Domestic equity indexes extended gains into green territory for the 7th consecutive session yesterday, leading many to believe that the markets may be showing signs of a bottom in the near [...]
Most commodity markets took a tumble Tuesday as Goldman Sachs issued a warning that oil prices were due for a correction, which along with more poor news out of Japan, prompted oil prices to sink over 3.5% in the session. Equities also fell sharply as all major indexes sank by roughly a percent on the [...]
Although growth prospects remain dim and job creation remains minimal, investors continue to snatch up equities thanks to a weak dollar and hopes that the Fed will resume its quantitative easing program in the not-so-distant future. However, speculation of this program and brighter futures in emerging markets are combining to produce some collateral damage, as [...]
Heading into the second half of the year, investors are divided over where global financial markets are headed. There is no shortage of bears, who point to depressing unemployment and consumer confidence figures as evidence that the recovery is quickly losing momentum (or perhaps never really had any in the first place). Others believe that [...]
After a rough start to the holiday-shortened week, equity markets surged on Wednesday as most major indexes jumped by close to 3% on the day. This large jump came after ETF issuer and financial giant State Street said that it was likely to top analysts’ expectations for second-quarter earnings. This news sent shares of State [...]
After the passage of a controversial health care bill earlier this year, many analysts wondered if the Obama administration lacked the political capital to push through comprehensive financial reform as the next big domestic issue. After various packages met stiff resistance on several occasions, Senators passed the financial regulation overhaul bill on Thursday in a [...]
After generally impressive earnings reports sent markets higher for much of the last week, Friday’s shocking allegations against Goldman Sachs ensured that the week ended on a down note. The SEC filed fraud charges against the Wall Street giant on Friday, alleging that the firm failed to make important disclosures surrounding a subprime mortgage product [...]
Since the global equity markets bottomed out in March 2009, the financial sector has been one of the top-performing corners of the U.S. economy. After being hammered as fears of a financial meltdown spread through Wall Street, big banks have recovered to strengthen their balance sheets, begin reporting profits once again, and even pay back [...]
