There are four distinct categories of exchange traded fund (ETF), and not all of them are created equal. Do you know what they are and what they can do for you?
Quint Tatro for Minyanville says that you can break down the ETF market into several categories: Traditional, niche, trading and actively managed. Note that while we mention specific providers in some categories, many providers are overlapping among the categories, offering both niche and traditional products, for example.
- Traditional: These are standard funds that are issued by providers such as iShares and PowerShares and they were recently sold to a private equity firm. They have grabbed the traditional index ETF market, and now that most of its ETFs are close to being in existence for 10 years, they’ve solidified their place in the game.
- Trading: Short-term trading has become popular again as the market volatility has gone way up. Trading ETFs are those that are short, leveraged or inverse, and they are not intended for long-term, buy-and-hold strategies. ProShares took top spot for the provider of this type of fund, while Direxion has upped the ante with triple leveraged funds.
- Niche: This area provides some great flexibility to investors who really want to zero in on specific areas of the market. The choices are increasing rapidly to include sectors as varied as steel, solar energy, shipping, technology and oil stocks. Claymore and Market Vectors both have lines of clean and alternative energy ETFs, for example, that can give investors exposure to this rising area of the market.
- Actively Managed: The first actively managed ETFs were launched by PowerShares, and there are more on the way from other providers. PIMCO, for instance, has filed for a line of actively managed bond funds. These funds offer investors the active management of mutual funds, but at a lower cost with generally more transparency.
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.