Exchange Traded Funds Offer Tremendous Investment Choices
ETF's track major stock indexes, but also offer investors access to much more whether they are looking for a little extra leverage or access to exotic investments like world currencies or hard commodities.

Most exchange-traded funds (ETFs) are track various market indexes. A market index is a list or methodology that determines the composition of a basket of stocks or other assets. Understanding indexes is important because they are the undelrying force that drives and ETFs’ performance.

Most indexes are created by respected finandical authorities such as Dow Jones or Standard & Poors. These entities often have slightly different methods for compiling indexes. even when they represent the similar investment objectives, e.g. ‘large cap value’ or ‘small cap growth.’ As such, performance of ETFs with similar objectives may differ depending upon the index they are based upon.

As the popularity of Exchange Traded Funds has grown, ETF sponsors have developed products based on increasingly more inventive and targeted indexes to furnish investors with specialized investing vehicles. For instance, developments include ETFs that modify conventional indexes in the hope of achieving improved returns.

Broad market stock indexes such as the Standard & Poors 500 have traditionally been ‘cap-weighted,’ meaning that the proportional representation of the stocks contained within the index is determined by their market capitalization. Larger companies comprise a greater percentage of teh index than smaller companies. Some ETFs are now using different weighting criteria such as dividends or earnings.

Other Exchange Traded Funds will modify their index composition frequently in an effort to emulate active management. Some products are based on differing themes, strategies, or criteria, such as market sectors, industries, geographical or regional characteristics. There are now also ETFs that amplify the performance of a given set of securities using leverage, or that furnish an inverse, or opposite, return of a the securities' performance, allowing an investor to take a short position.

Some of the various categories and types of Exchange Traded Funds include major US indexes such as the S&P 500, Dow Jones Industrial Average, Russell 2000, or NASDAQ 100. There are those seeking to track a specific investment style such as growth or value, small-capitalization or dividend-paying stocks.

Sector based ETFs track the performance of stocks in specific market sectors such as biotech, energy, financials or healthcare. International ETFs track the performance international markets indexes like the CAC 40, FTSE 100, or Nikkei, or Hang Seng, as well as emerging markets, specific geographic regions, a well as individual countries.

Investors may also gain exposure to commodities through ETFs tracking the performance oil, various previous metals, and other commodities, through funds that own a basket of related stocks or actual ownership of the commodity itself. There are currency ETFs tracking the performance of major world currencies, bond ETFs represent baskets of corporate or government bonds, and more.

by TheOptionClub.com -

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