Exchange traded funds (ETFs) are such phenomenal investing tools they
are actually changing the way investors invest.

They’ve come a long
way since they first landed on the scene in 1993. Billy Fisher for The Street highlights some major advances arising from the advent of the ETF.

• Betting on the bears: ETFs make it much easier to take a bearish stance and hedge against downside risk. ProShares Short S&P 500 (SH) delivers
  performance that is the opposite of the index it tracks. Investors no
  longer have to buy puts or sell short. The high risk is also offset. Rydex also offers a line of inverse funds, including the Rydex Inverse 2x Russell 2000 (RRZ).

• Active management: Actively managed ETFs have finally gained approval from the Securities and Exchange Commission (SEC) and are now awaiting investor approval. PowerShares
  recently launched ETFs coupled with the skill of an active manager and
  the diversification of an ETF. PowerShares Active Low Duration Fund (PLK) or the PowerShares Active Alpha Multi-Cap Fund(PQZ) are a few examples of the ones available. XShares and State Street are also planning to launch products of this type.

• Access granted: Areas of the market individual investors once found hard to access, such as commodities or preferred equities, are now available. iShares S&P US Preferred Stock Index (PFF) and the PowerShares Financial Preferred Fund (PGF) have shown strong interest.

• Plays on the dollar: The weakening U.S. dollar has been the
  topic du jour, and now investors can put their money where their mouth
  is and invest in currency. PowerShares DB U.S. Dollar Index Bullish (UUP) is a favorite among some analysts.

Read the disclosure, as Tom Lydon is a board member of Rydex Funds.

Tags | Agriculture