ETF or exchange traded fund is one of the most significant investment products originally created for individual investors. These ETFs offer many benefits and, if used wisely, are an excellent means of achieving your investment goals.
These ETFs can track the performance of different asset classes:
* Basket of company shares
* Basket of bonds
* Raw materials
In addition, the structure of exchange-traded funds can allow traders and investors to open short sales , use financial leverage and avoid some capital gains taxes in some countries and jurisdictions. ETFs are very similar to mutual funds , but they also have their differences, which we will discuss later in the article.
Types of exchange traded funds
There is a wide variety of types of ETFs, and their number continues to grow steadily. Each exchange traded fund has its own characteristics, but let's look at the main types of ETFs:
* Market ETF - designed to track the performance of a specific index. These ETFs are also called index funds such as S&P 500 ETF, Nasdaq ETF, DAX30 ETF.
* Bond ETF - designed to provide exposure to almost any type of bond - government, municipal, corporate, international, high-yield, etc.
* Sectoral or industrial ETF - designed to provide exposure to companies in an industry such as energy, pharmaceutical or technology
* Commodity ETF - designed to track the performance of the price of a particular commodity such as gold ETF, oil ETF, etc. The largest such exchange traded fund is the SPDR GOLD TRUST ETF.
* Style ETF - designed to track the performance of a particular investment style or market capitalization as investments in value stocks and large capitalization or investments in growth stocks with small capitalization.
* Country ETF - aims to track the performance of an index from a country such as the European EuroStoxx 600, Japan's Nikkei or Hong Kong's Hang Seng.
* Actively managed ETF - created to perform more strongly than an index, unlike the already mentioned index funds. This type of ETF is managed by a fund manager and can often change the assets held.
* Alternative Investment ETFs - these are innovative structures that allow investors to trade volatility or gain exposure to a particular investment strategy.
* Reverse ETF - aims to win when the price of the underlying asset falls. For example, an inverted ETF of the S&P 500 will bring profits to those who bought it when the price of the S&P 500 index fell
* Exchange traded notes - essentially, debt securities supported by the creditworthiness of the issuing bank; designed to provide access to illiquid markets and have the added advantage of generating almost no short-term capital gains taxes
Due to the rapid growth in the number and types of exchange traded funds, you may find other types of ETFs in which you can invest and trade.