An Investor should always seek for opportunities to increase their portfolio and capitalize on such opportunities. The need to hedge your investments against risks and other emerging issues is a valid reason to increase your portfolio exposure and to work on your investment strategies. Here is a list of the most popular types of ETFs to consider adding into your portfolio.
1. Equity Funds
Most ETFs attempt to track the performance of market indexes. Equity ETFs gives investors a perfect way to help them achieve a portfolio diversification. There are two major types of indices which are classified as indices that track the overall market for example the S&P 500 and indices that track a more specifically targeted subset of the overall market for example large cap value stocks and small cap growth stocks . Choosing the right investment depends on how those indexes are constructed and maintained.
2. Fixed-Income Funds
Fixed income funds such as bonds and bonds ETFs are good for portfolio management. Majority of investors invest 50% of their long-term savings in fixed income securities as it is ideal to reduce the volatility of the investor’s portfolios and also offers a good source of income. An investor need to do proper fixed income ETF analysis and selection to achieve their goals.
3. Commodity Funds
Commodity funds gives exposure through physically backed funds, equity funds, futures-based funds and exchange traded notes. Investing in commodity funds requires you to know the funds objective and how it pursues that particular objective. The exposure depends on whether the ETF holds the physical commodity, or uses future contracts, uses ETNs which are linked to a variety of assets, or hold equities of companies that are engaged in a particular commodity production. Physical commodity ETFs own the underlying commodity and Equity based give exposure through the companies that produce, process and transport the commodity. Investors should consider the level of exposure and risk tolerance of the fund to make an ideal selection.
4. International ETFs
International ETFs offers investors portfolio diversification and provide a way to benefit from faster growing economies around the world. There are broad-based international equity fund that gives exposure across multiple countries and there are single-market ETFs. Your choice of the one to pursue will depend on the level of risk tolerance and the level of involvement.
5. Foreign Currency Funds
Foreign currency funds are used by investors to hedge the value of their portfolio. Currencies move up and down due interest rates movements, economic crises, global summits, central bank intervention, political instability, wars, terrorism, natural calamities, and government policies among other things.
6. Real Estate Funds
Real estate investments funds are used by investors to protect their portfolio as this investment must pay out 90% of their taxable income to shareholders. Whether you choose a broader or specific type of real estate, REITs are attractive in-terms of yield and provide a good source of income.
7. Specialty Funds
Specialty funds include the leveraged and the inverse ETFs. The inverse ETFs use gearing which is the ratio of the leverage to equity to provide their expected returns. To achieve their exposure, these funds hold swaps. Inverse funds benefits when a particular index performs poorly and leveraged funds use leverage to double or to triple the returns of a particular index. Specialty funds are very volatile and thus unreliable for long-term investments.
8. Actively Managed Funds
The actively managed funds are subjectively chosen by a fund manager on their own basis without necessarily following a rules-based index. The Actively managed funds are registered as an investment company with the Securities Exchange Commission (SEC). These funds are traded and should disclose their holdings on daily basis and the portfolio manager can adjust the portfolio as desired or needed to beat a benchmark using trading models and strategies that suit it best. As an investor, it is recommended to consider the advantages and disadvantages of these funds before making an investment.