ETF's

Exploration Essay

An exchange-traded fund, also known as ETF’s are a group of stocks that work very similarly to mutual funds. Typically, ETFs will track a particular index, sector, commodity, or other assets, but unlike mutual funds, ETFs can be purchased or sold on a stock exchange the same way that a regular stock can. An ETF can be structured to track anything from the price of an individual commodity to a large and diverse collection of securities. ETFs can even be structured to track specific investment strategies. The first created ETF was the SPDR S&P 500 which tracks the S&P 500 Index and is still active to this day. The reason behind the name “exchange-traded fund” is that just like stocks, it is traded on an exchange. Gradually, throughout the day, its price will increase or decrease based on the number of shares bought or sold. However, what sets ETFs apart from mutual funds is the fact that mutual funds are only traded once a day after the market closes and are not an exchange. ETFs can own as many as thousands of different stocks across various different categories. Considering the fact that people can own as many stocks as they would like, a lot of them decide to diversify across different markets so if one sector crashes, the other sectors can still make them money which is also one of the advantages of this stock. Some of the stocks an ETF can contain include: stocks, commodities, bonds, or a mixture of investment types. These stocks can also be based in a certain country or globally. Looking at these types of investments over the years, ETFs are becoming more popular day by day.

While there are many types of different ETFs, the main ones include Passive and Active ETFs, Stock ETFs, and inverse ETFs. ETFs are generally managed as active or passive. Passive ETFs have the goal of replicating the performance of an index such as the S&P 500 or a more targeted category. For example, gold mining stocks. As of this month, there are approximately eight ETFs that focus on companies engaged in gold mining. On the other hand, active ETFs typically do not target an index of stocks, but rather have portfolio managers making decisions about which stocks to include in the portfolio. These funds tend to be more expensive to investors as compared to passive ETFs. Stock ETFs consist of a basket of stocks to track a single industry or sector. For example, a stock ETF might track automotive or foreign stocks. The goal is to provide diversified exposure to a single industry by not only including well-performing stocks but also penny stocks with the potential for growth. Unlike stock mutual funds, stock ETFs have lower fees and do not involve actual ownership of the stock. Unlike most ETFs, inverse ETFs aim on shorting stocks and hoping for them to go down. This type of ETF can be both active or passive however, its goal is to invest in bad-performing stocks and bet on them to go down. Considering that ETFs can be based on entire sectors, your odds of making a profit this way can be much higher than shorting one individual stock.