ETF Equity

By: EconomyWatch   Date: 3 August 2009

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ETF equity is an exchange traded fund that allows investors to diversify their equity holdings in a cost-effective and tax efficient manner. These ETFs are aimed at:

  • Realizing high capital appreciation

  • Diversifying the portfolio

 

ETF equities are specially designed for investors with higher risk tolerances. Thus, these funds are appropriate for:

  • Moderate and high-net worth investors

  • Investors preferring a ‘top-down’ investment approach

 

ETF Equity: Types

 

ETF equity can be designed to secure better exposure of broad domestic and/or international market or a specific sector.

 

Following are the various types of ETF equity:

 

All-world and all-world excluding US ETFs: These ETFs offer global equity diversification. They cover most stock exchanges in:

·        developed markets

·        emerging markets.

 

Investors can also opt for ETFs that are focused only on developed or emerging markets.

 

Broad-based US ETFs: They are designed to cover the entire US equity market. The iShares Dow Jones U.S. Total Market Index Fund is an example of this type of ETF.

 

Market capitalization ETFs: Rather than a broad based market, these ETFs focus on:

  • large cap stocks
  • mid cap stocks
  • small cap stocks

 

Examples of this type of ETFs are:

·        SPDR DJ Wilshire Large Cap ETF

·        SPDR DJ Wilshire Small Cap ETF.

 

Sector ETFs: They invest in the stocks of various industrial sectors, such as:

  • Energy
  • technology.

 

Growth and value ETFs: These ETFs consists of growth and value stocks, respectively. Examples are:

  • iShares Russell 3000 Growth Index Fund
  • iShares Russell 3000 Value Index Fund

 

Leveraged ETFs: These ETF equities offer high exposure to indexes that cover broad-basedUS market. However, these ETFs come with such high volatility that their performance doubles or trebles the impact of the broad indexes. An example is that   ProShares Ultra S&P500 ETF offers double the returns offered by S&P 500 index.

 

Quantitative ETFs: This ETF usesenhanced indexing to quantitatively identify stocks. Typically, these stocks have the potential to outperform from within an index. Their aim is to offer returns that are higher than what is generated by a benchmark index.

 


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