Exchange traded funds (ETFs) are baskets of stocks that trade on an exchange like a single stock, but are modeled after index mutual funds. ETFs give investors tax efficiency and are not actively managed, so expenses are minimal. They also can provide instant diversification, low costs and international exposure. On top of all of that, they offer transparency.
As ETFs have proliferated, the ability to focus on more specialized areas of the market has evolved. That’s wonderful news for investors seeking to get a slice of certain market areas and buy a basket of stocks there. However, it also concentrates the risk that accompanies such specialization and tilts a portfolio away from the broad diversification that makes index investing attractive. Some of the top-performing ETFs for the last three months, according to Rich Duprey for The Motley Fool include:
- iShares FTSE Xinhua/China 25 Index (FXI) – up 43.2%
- PowerShares Golden Dragon Halter USX China (PGJ) – up 31.5%
- Claymore/BNY BRIC (EEB) – up 29.0%
- BLDRs Emerging Markets 50 ADR Index (ADRE) – up 17.7%
- iShares MSCI Brazil Index (EWZ) – up 15.5%
- iShares S&P Latin America 40 Index (ILF) – up 11.5%
- iShares MSCI Singapore Index (EWS) – up 9.2%
Although there are many ETFs to choose from, many of the above popular ETFs have not been around for long. For example, FXI, PGJ, and EEB don’t have three year-returns, which is an important performance milestone. It’s also important to notice that all of these ETFs are involved in international markets, and four of them invest in China, as it’s the world’s fastest growing economy.
For full disclosure, some of Tom Lydon’s clients own EEB and ADRE.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.