However, with many investment ideas already fully populated, more ETF providers are targeting niche market segments or specialized investment strategies. Potential investors should be aware that these types of ETF investments can become more volatile and come with higher expenses. For example, there are about 430 so-called enhanced ETFs, or funds that do not track traditional market capitalization-weighted indices, on the market with an average expense ratio of 0.62%, according to XTF data.
On the fixed-income side, selecting a right bond ETF may be slightly more tricky. While investors can still track the broad fixed-income market through a single offering, such as the iShares Core U.S. Aggregate Bond ETF (NYSEArca: AGG), a broad index-based bond ETF is less likely to generate the same level of returns as a broad equity ETF. [Bond ETFs for Cost-Conscious Investors]
Instead, more-focused bond ETFs provide investors greater control over potential market risks, such as credit risks or interest rate risks. Consequently, investors can choose among investment- or speculative-grade bond ETFs to adjust their credit risk exposure and utilize long- or short-duration ETFs to regulate interest rate risk. [Short-Term Treasury ETFs Trip As Yield Curve Flattens]
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article. Tom Lydon’s clients own shares of IVV and SPY.