Exchange Traded Funds Primer
Exchange Traded Funds (ETFs) are a group of passive index funds that trade on an exchange like an individual stock. At the time of writing there are 162 ETFs with $220 billion in assets under management trading on U.S. exchanges.
ETFs hold a basket of securities that mimic the results of various indices including broad stock and bond market, industry sectors, and international securities. New niche funds are being created regularly. Recent introductions include gold and China funds, and there are rumors that a silver ETF will soon be available.
The most popular ETF is the NASDAQ 100 Tracking Stock (QQQQ) trading 50 million shares a day on the NASDAQ Stock Market. The volume leaders on the American Stock Exchange are the SPDRS (SPY) tracking the S&P 500 trading 25 million shares per day, the Energy SPDR (XLE), Japan iShares (EWJ), Russell 2000 iShares (IWM), and the Financial SPDR (XLF).
ETFs are widely used by institutional and individual investors as a tool for diversification, risk reduction, hedging, and an efficient way to acquire a basket of securities providing partial ownership in all holdings with only a single commission and small administration fees. ETFs are also transparent, meaning that investors know at all times what securities they are invested in.
There are now also options and futures contracts trading on of ETFs. The Chicago Board Options Exchange (CBOE) lists 43 options on ETFs, while the Chicago Mercantile Exchange (CME) offers futures contracts on the S&P 500 Depository Receipts, NASDAQ 100 Tracking Stock, and Russell 2000 Index Fund. And One Chicago, a joint venture between the CBOE, CME, and Chicago Board of Trade (CBOT), offers an electronically traded futures contract on the DIAMONDS Dow Jones Industrial Average ETF.
There are also a number of web sites offering information on Exchange Traded Funds. Check out Amex.com, Yahoo! Finance's ETF Center, ETFConnect, or ETFera.com. Meanwhile, investment research firm Morningstar compares the fair value estimates to market prices of exchange traded funds holdings to determine whether a fund is over or undervalued.
Exchange Traded Fund's low costs, liquidity, and diversification make them an excellent alternative to mutual funds, broad based index investments, and individual stocks in niche sectors.
Mark Mahorney is the owner of Cofishop Media Group located in Keystone, CO. Cofishop is a diverse marketing services organization and online content syndicator of a suite of financial sites. Mark has been a contributing author to The Motley Fool and published in numerous leading financial publications.
Mark inks The Market Speculator newsletter, a hedged approach to market profits for individual investors. You can also read his scrawls, scribbles, rambles, and rants on the markets and whatever other ilk gets his ire at BlogginWallStreet.com and Marketblog.com.
MarketSpectator.com: Profit in the calm, protect in the storm
BlogginWallStreet.com: What really moves the markets
MarketBlog.com: Market missives and more.
More Resources
Unable to open RSS Feed $XMLfilename with error HTTP ERROR: 404, exitingMore Stocks & Mutual Funds Information:
Related Articles
Investment Attorneys and Garbage Stocks
How is it possible that trash Companies are posting less than expected results? Trash Companies are thought of by prudish investors as some of the safest stocks to own. Ask Warren in his Buffet of Essays on Corporate America.
Psychology - How to Reduce Negative Thoughts Relating to Trading?
The thinking process of the brain relating to the psychology of trading involves:-- Beliefs -- Feelings -- Values -- Dispositions and -- FaithThe positive or negative energy brings power to a person's actions, which ultimately determines whether a person is a winner or a loser. You can change for the better or for the worst.
Size Counts!
What the heck am I talking about?It is often said that to grow mentally, spiritually, emotionally and personally that you have to stretch and move out of your comfort zone. I definitely believe in this concept, however.
Stock and Fund Dividends
When is a dividend not a dividend?The latest thing "conservative" brokers are preaching these days is to buy stocks that pay dividends. Everyone likes dividends.
Selection Vs Direction
As I have said many times before in this column it really doesn't make any difference what you buy - stocks, funds or indexes - it takes smarts to know when to sell. Direction of the general market is more important than selection of any equity.
Investment Discipline
One of the great "secrets" of successful people is discipline and it doesn't make any difference whether it is manufacturing, processing, servicing or investing in the stock market.Before you can have that discipline you must have a successful plan and stick with it.
Performance Funds
Mutual funds are doing more and more to discourage investors from leaving them and taking their money to a better performing fund. What does better performing mean? It has nothing to do with who the manager is, what the expense ratio is or how well they performed over the past 5 or 10 years.
Selling Strategies - Setting a Stop Loss
Sometimes the best way of lowering exposure to risk is not to invest at all! However, when we make the decision to jump into the muddy waters of the stock market, its always a good idea to have a life jacket ready, just in case.We all have stories of that "must have" "can't lose" stock that looking back, we didn't really need to buy, and it definitely lost.
The Information Age
It is wonderful to be alive in the information age. We know in a matter of seconds the change in the value of gold in Switzerland, the death of a world leader or the birth of a peasant in Israel.
Time Out
Are you paying any attention to your retirement savings? Do you have it in cash or an account with a broker? Maybe you have a professional manager who is investing your money as you add to it every month.Is your account increasing in value every year? If it isn't why are you letting anyone else invest for you? There is no point having a loser in charge of your money.
What is the Most Important Indicator of All?
Most stock market traders have a favorite technical indicator.The one that they have the most confidence in.
The 10 Commandments
Wall Street has been preaching for years and years to investors how and where to put their money. The "experts" have put forth these ideas for so long that they seem to be carved in stone just like Moses did with God's 10 Commandments.
How to Read an Annual Report
Every publicly traded company is required by the SEC(Securities and Exchange Commission) to provide annual reports to it's shareholders, and the general public as well. These annual reports contain very important financial information, as well of summaries of the companies progress made by the CEO, board members, etc.
So, What is This Stock Market Thing Anyway?
We've all heard of the stock market and probably have a general idea of what it is and how it works either from high school economics classes, television financial reports, and the countless film depictions of what happens on the floor of the New York Stock Exchange. But how does it really work and what is meant by "playing the stock market?"The Stock Market in a NutshellCompanies sell shares of stock as a means of raising capital.
The 401(K): How The Insider Has Stolen Your Retirement!
Mutual funds were moderately successful in creating a presence in the stock market until the advent of the investment retirement account and in particular the 401(k). Corporate insiders persuaded the federal government to allow for the 401(k) in lieu of offering employees the traditional pension.
The Golden Goose is Sick
It is finally catching up with them. The brokerage companies I mean.
Historical Briefing: Stocks, Finance and Money
The World Bank claims that some two billion of the world's citizens live on $1 per day or less! That fact absolutely shocked me. With this statistic in mind it becomes important to focus on all of the things that have served as money over the history of civilization.
A Triple Dipper: How to Make 3 Profits on 1 Stock Trade
This is a rather simple strategy with which I am sure a lot of seasoned traders are very familiar, possibly under some other name with which I am not familiar. I wanted to write about it because I don't see anyone talking about it anymore.
My Stock - Right or Wrong
We all know the expression, "My country, right or wrong", but have you ever thought about the stocks or mutual fund you own and said to yourself, "My stock - right or wrong" and held on to your position even as you saw your hard-earned money disappearing?This is the Buy N Hold strategy and, in case you haven't noticed, lost from 40% to 60% and more of investors' money from 2000 to 2003. Fortunately, for the past year stock markets around the world have gone up and folks have recovered about 25% to 30% from those low numbers.
Wal-Mart: Discount Store, Discounted Stock?
As GuruFocus updates the stock buys and sells of gurus, Wal-Mart (WMT), the discount retail giant, stands out as the stock with a high ValueRank (7 out of 10). Just recently, Clipper Fund's James Gipson and T.