ETFs Part 1

ETFs Part 1

If diversification is the holy grail for investing, Exchange-Traded Funds (ETFs) provide a cost-effective way to invest in a wide range of assets and indexes.

The true advantage of ETFs is that the fund managers replicate the benchmark index performance 

So, the managers of ETFs are regularly promoting or demoting assets within the fund according to their price performance over the quarter.  

ETFs can be stock sector-related, energy, technology, commodities, precious metals, fixed incomes ETFs, so the investors of an ETF mitigate the risk of buying an underperformer within the sector.

For example, say you want to invest in food retail stocks which outperform the stock index. But through sheer misfortune, you select a stock where an accounting scandal hits a month later and the stock crashes. So ETF investing mitigates the risk of individual stock picking, and it is like betting on all the horses in the race, improving your odds.  

The Largest Sector ETFs, by AUM

With over 3,200 ETFs in the US alone, finding the best one can be daunting with even ETFs that hold Bitcoin!

So, I am focusing on a list of the largest ETFs within every stock sector and asset class. 

The main advantage of selecting ETFs with larger-size assets under management AUM is better liquidity and potentially lower expense ratios compared with smaller AUMs.

Best Technology ETFs

• The Technology Select Sector SPDR® ETF.
• Fidelity MSCI Information Tech ETF.
• SPDR® S&P Software & Services ETF.
• First Trust NASDAQ-100-Tech Sector ETF.
• Invesco PHLX Semiconductor ETF.
• Invesco S&P 500® Equal Weight Tech ETF.
• SPDR® NYSE Technology ETF.

Top five energy ETFs  

• The Energy Select Sector SPDR Fund (XLE)
• SPDR S&P Oil & Gas Exploration & Production ETF (XOP)
• Global X MLP & Energy Infrastructure ETF (MLPX)
• Fidelity MSCI Energy Index ETF (FENY)
• Vanguard Energy Index Fund ETF Shares (VDE)

Top five healthcare ETFs

• VanEck Pharmaceutical ETF
• iShares US Healthcare ETF
• Vanguard Health Care Fund
• Health Care Select Sector SPDR Fund
• NYSEARCA: IHF

There are also ETFs for bonds, with investors able to choose from corporate bonds and sovereign bonds.

Top four Treasury ETFs 

• iShares 20+ Year Treasury Bond ETF (TLT)
• SPDR Bloomberg 1-3 Month T-Bill ETF (BIL)
• iShares 7-10 Year Treasury Bond ETF (IEF)
• Vanguard Intermediate-Term Treasury ETF (VGIT)

Those who profited from the emerging market crisis and bought emerging market ETFs as India’s economy boomed have achieved alpha, with a top Emerging fund YTD profit of 35%.

Top four Emerging ETFs

• SPDR S&P Emerging Markets Dividend ETF (EDIV)
• Shares MSCI Emerging Markets Small-Cap ETF (EEMS)
• First Trust Emerging Markets Equity Select ETF (RNEM)
• Freedom 100 Emerging Markets ETF (FRDM)

Precious Metals ETFs

• SPDR Gold Shares (GLD)
• Shares Gold Trust Micro (IAUM)
• USCF Gold Strategy Plus Income Fund (USG)

So whether you want to invest in US stocks, stock sectors, bonds, precious metals, or emerging markets ETFs have you covered.

Back to the holy grail of investing, diversification, in part 2, I will look at the performance diversification of ETFs in your portfolio.