If you are an individual investor with mutual funds and stocks, you may want to consider beefing up your portfolio with exchange traded funds (ETFs). Like mutual funds, they provide the investor with ready access to various stocks and bonds; they are also a cost-effective way to diversify your portfolio with passive-managed assets. Unlike mutual funds, ETFs can be fully liquidated at any time during the trading day. The distributions from ETFs include the taxable assets in the cost of the trade; preventing the investor from having to pay capital gains taxes down the road.

To build up and diversify your portfolio effectively, you need to combine asset classes. Each asset class behaves differently; combining them skillfully is the key to a healthy portfolio with strong dividends. ETFs are among the instruments of choice for private investors when it comes to diversifying their asset classes. Tied as they are to a market index, they reduce the investor’s overall risk. Where large cap stocks can be highly volatile, ETFs remain fairly predictable. Ideally, the private investor should have both small, mid and large-cap stocks and mutual funds in his portfolio; along with ETFs to provide a buffer against the relative volatility of the stocks and bonds.

ETFs actually contain numerous asset class representatives: stocks from emerging markets, small to mid cap stocks, and sector exchange trades. Sector ETFs are funds that invest in a particular sector of the market; oil, technology, and precious metals are examples (the sector is usually identified in the fund’s title). Most are U.S. based, but more and more global sector ETFs are now being traded. In periods of high market volatility (such as we are experiencing presently), all equities tend to underperform. Fixed-income ETFs with single-digit volatility provide the investor a hedge against inflation.

Whereas mutual funds typically charge 1 to 1.5 percent, ETFs charge only about .25-.50 percent, a considerable savings. Cutting down on your total fee outlay is essential to realizing real profits in the market over time. ETFs require much less scrutiny on the part of the investor, while active-managed assets often require constant analysis. For an individual investor with full-time responsibilities outside the investing world, this can be absolutely key to investment success. Funds that essentially take care of themselves can help you diversify your portfolio while reducing your overall market risk.

About ETFs - Exchange Traded Fund (ETF) Reviews and Recommendations

It would be an understatement to say that there has been a great deal of uncertainty on Wall Street lately. High stock volatility and the failure of the economy to bounce back as quickly as hoped has left many private investors looking for safe asset classes. For many, exchange traded funds (ETFs) provide an island of safety in a sea of volatility. They account for more than a third of overall trade volume in the U.S., and provide investment opportunities to individuals that were available only to corporations in the recent past.

The highly uncertain economic outlook has prompted a huge surge in ETF popularity. These instruments may not offer the wild dividends that stocks or mutual might offer; but in uncertain times, people become risk-averse and prefer to invest in instruments that generate a predictable return. Low maintenance fees and tax advantages have combined with low risk to fuel a growing interest in ETFs among investors of all stripes.

There are ETFs associated with a variety of assets, such as tin, copper, gold, and oil. In addition to these resource-specific investment products, more than twelve broad-based commodity ETFs are now available as well. These products are ideal tools for the savvy long-term investor who wants exposure to commodities futures. Once considered a fad, exchange traded funds have come into their own; they continue to evolve and attract a broad base of investors.

A critical element in that evolution has been the international reach of ETFs. Nearly all highly developed economies offer them, and more are coming online all the time. One country has emerged as a major player in international ETFs, and it should come as no surprise that that country is China. While some European economies are in freefall and the U.S. recovery is less robust than was hoped, China has emerged as a powerful force in the global economy. Once based almost solely on exports, the Chinese economy is increasingly driven by consumer demand. As a result, investment opportunities abound, and those opportunities include international ETFs.

Exchange traded funds were first introduced in Europe ten years ago. They have taken off in a huge way there, particularly in the UK. More than 1,000 ETFs have been brought to the European market since the year 2000, and have grown from $700m to $267.44bn AUM. In the UK, year-to-date ETF sales total £1.7 billion and are steadily increasing.

About ETFs - Exchange Traded Fund (ETF) Reviews and Recommendations

Exchange traded funds (ETFs) seem to be in their ascendancy. Investment interest—along with their assets—is shifting from ordinary mutual funds to their exchange-traded alternatives. Despite the fact that they can buy and sell mutual funds without the help of a broker, many investors are choosing to go the ETF route.  ETFs can be purchased at any brokerage firm, just like any stock. The management fees associated with them are considerably lower than those associated with active-managed mutual funds. Additionally, with a traditional mutual fund, the trader can buy or sell the fund only at the closing price when the trading day comes to an end. ETFs, on the other hand, can be traded any time the market is open.

Of course, mutual funds can outperform the market, while ETFs are tied to the performance of the indices to which they are attached. It is entirely possible that any given mutual fund will provide a better return on investment than any given ETF, but such is not necessarily the case. The fact that a fund outperformed the market yesterday is no guarantee that it will do so tomorrow. While some investors enjoy taking aggressive risks, others prefer to stay with an instrument that guarantees a certain average market return. For them, ETFs provide a less risky alternative to mutual funds and other investment vehicles. On the other hand, those other investment vehicles are insured by the Depository Trust Clearing Corporation, while ETFs are not. Nonetheless, fraud and abuse with ETFs has been negligible; every application to create an exchange traded fund receives a thorough examination by the SEC.

ETFs can be created around any liquid asset with a published index. Precious metals, real estate, stocks and bonds are all potential assets for ETFs. Many of them are now international; Europe, Japan, China, Australia, and nearly all other developed countries have established indices of liquid assets that can be converted into ETFs. Market analysts predict that more and more countries throughout the world will begin offering them as their economies develop and stabilize. In the United States, they are available to anyone who can establish a brokerage account. (Interestingly, there are four developed countries that decidedly do not offer ETFs: Pakistan, Iran, Saudi Arabia, and Argentina. This is most likely a politically driven phenomenon.)

One of the characteristics of ETFs that draws potential investors is their lack of a minimum investment requirement. While some mutual funds require a minimum investment of up to $50,000, investors can buy into an ETF at any amount. Additionally, while investors must redeem mutual funds for the net asset value at the end of the trading day, ETFs offer intraday trading options. Any time the market is open, investors can sell these assets (assuming, of course, that they can find an investor who’s willing to buy.)

About ETFs - Exchange Traded Fund (ETF) Reviews and Recommendations

The fact that exchange traded funds (ETFs) reflect the market is generally well-known and understood. These funds are tied to the index to which they belong and as a result paint a clear picture of market conditions. But is it possible ETFs could also have a determinant role to play in those conditions?

WSJ.com’s MarketBeat thinks so, particularly when ETF volumes exceed those of individual stocks. “Investors turn more to ETFs as a hedge when they can’t count on fundamental stock-picking to generate good results,” MarketBeat reports. In an economy that’s still in the process of recovery, investors try to avoid big losses even more than they seek out large gains. The fact that the volume of ETFs now exceeds that of individual stocks seems to bear this out.

According to Liz Myers of J.P. Morgan Chase, “A long-only equity investor’s mandate is to find returns investing in single stocks. In a market with correlations as high as they are, it becomes more challenging to pick the winners.” The MarketBeat report goes on to say that bankers and investment professionals on Wall Street view ETFs as indicators of investor mood. The relatively volatile state of the current market means that stock correlation is at an all-time high. As a result, choosing winning and losing stocks becomes a much more difficult proposition. As market strategist Steve Wood says, “”When correlation goes up, the differences within a sector or even between industries drop, and all things are evaluated as being the same.”

It’s not just investor sentiment that can be read by following ETFs; they can be used to assess the mood of financial advisors as well. According to Investors Intelligence, their mood is on the rise:

“There were fewer bears in the latest week at 32.6% from 34.7% a week ago and 46.3% to start October. That was the most bears since March 2009 when they peaked at 47.2%. That high reading signaled that the advisors were raising cash and contrarians recognized it as a buying opportunity.” (Investors Intelligence, Nov. 16, 2011)

Market analysts attribute the popularity of ETFs–and the rise in investor confidence this reflects–to several well-known characteristics of the investment alternative. ETFs provide a more predictable income stream than do individual stocks or mutual funds. The passive management of ETFs lowers the overall tax bite to the investor. They are structured in a particularly transparent fashion; active-managed mutual funds can seem almost opaque by comparison. They also incur higher management fees; some funds that outperform ETFs may actually lose money in the long run. For some private investors for whom predictability of income flow is of paramount importance, ETFs are the clear choice.

About ETFs - Exchange Traded Fund (ETF) Reviews and Recommendations

Exchange traded funds (also known as ETFs) are funds that keep track of the well-known stock indexes: Dow Jones, the S&P 500, NASDAQ, and so on. They are constructed like mutual funds; but like individual stocks, they are priced “on-the-go” and bought and sold through the trading day. Purchasing ETFs, one acquires portfolio shares which track the return and yield of the indices to which they belong. The main distinguishing feature of ETFs (and what sets them apart from other stocks) is that they reflect the performance of the indices they belong to. No attempt is made to do better than that index. In a sense, ETFs can be said to “reflect the market” on Wall Street.

ETFs were introduced in 1993, as a result of the SEC’s “SuperTrust Order” (they became available in Europe in 1999). The first ETF was the SPDR on the S&P 500 index. ETFs derived from the Dow Jones and NASDAQ indices soon followed. Today, they are an integral part of the American Stock Exchange’s trading day.

Chief among the benefits of ETFs is their combination of range and simplicity. An ETF enables a trader to trade a single stock and reap the dividends of a diversified portfolio. Also, portfolios that are actively managed incur administrative costs that are greatly diminished in the case of ETFs (the style in which they are administered is known as “passive management”). Those who purchase them harness the market’s power and make it work for them.

Another benefit of ETF trading is substantial savings on capital gains taxes. Securities trading tends to generate relatively high distributions of capital gains. Passively managed ETFs, by contrast, require fewer trades in and out of the investment instrument, which translates into a better return for investors.

Assuming you understand the risks and benefits of stock trading, ETFs can provide substantive flexibility and lower overall costs as compared with other investment instruments. These benefits (along with the fact that they are tied to the performance of major indices) have made them a popular investment tool, especially over the past several years.

Like ordinary stocks, ETFs allow the investor to take advantage of options, short-selling and limit orders. They often trade on commodities such as precious metals and oil. Before the SEC approved ETFs in 1992, securities could either be exchange listed or open-ended. This relatively new investment instrument combines aspects of both.

About ETFs - Exchange Traded Fund (ETF) Reviews and Recommendations