A list of 10 best Exchange Traded Funds. We rate them based on historical return, volatility, expense ratios, and more.
If you are looking for an Exchange Traded Fund list, we cover everything for you. In this article, you understand everything needed if you are a beginner or a pro.
Definition of Exchange Traded Fund
ETF is a mutual fund that is traded throughout the day like a common stock on a stock exchange. The key difference between a mutual fund and an ETF is ETF trades like a stock. Buying and selling of ETF is possible any time during the trading day at the current market price.
ETFs are similar to index funds in that they seek to track the return of a specific market index. ETFs, however, have the added advantage of being able to be traded throughout the day just like a stock.
What Is an Exchange Traded Fund and How Does It Work?
Investors seeking exposure to an index can consider ETF investing among many possible options. Exchange-traded funds are one type of investment designed to represent a popular index. An investor who wishes to diversify their portfolio may prefer investing in such a fund because they contain multiple holdings that try and mimic the target index.
While you may be familiar with various kinds of mutual funds, ETFs are another kind of investment that works differently from other types of financial instruments that you’re probably more familiar with, like stocks, bonds, or balanced portfolios. However, they’re technically classified as differently structured mutual funds.
ETF is also known as Passive Index Fund. Passive index funds are essentially a collection of stocks. Each stock holds the same number of shares that the company is worth. Since they don’t let their managers decide which companies to let go of or purchase over another, they’re said to be passively managed.
Exchange Traded Funds advantages and disadvantages
Exchange-traded funds are perfect for first-time investors who want to see how the market works and may not be as comfortable with mutual funds being contingent on multiple factors.
There are multiple advantages of investing in ETFs. Firstly, passive and actively managed funds have different investment strategies. In contrast, the former involves daily buying and selling securities and notifying the IT department about all transactions. Active funds require the fund manager to monitor each stock’s performance and choose carefully.
The downside is that this often leads to higher turnover rates for actively managed schemes, resulting in higher tax payments every year due to STT (Securities Transaction Tax) and capital gains tax.
ETFs are comparatively better because they’re considered more tax-efficient since there are fewer instances of an active trader making a transaction, leading to unnecessary taxes.
Secondly (and many would argue most importantly), ETFs generally have lower expense ratios than managed mutual funds.
In addition, they do not carry the same risks as actively managed funds because they are often passively managed, meaning that they track an index and provide investors with a modest boost in performance compared to comparable ETFs over time.
Thirdly, exchange-traded funds are listed on exchanges and traded like stocks. Investors can transact in ETFs during market hours at real-time prices, unlike actively managed mutual funds, where NAV is computed only once a day after the market closes.
Exchange Traded Fund Vs Mutual Fund
The ETF option has two key advantages over mutual fund options. First, ETFs are easier to buy and sell than traditional individual stocks . Second, they often offer both potential lower risk and higher return compare to traditional mutual funds.
It means index ETFs appeal to those with relatively short time horizons, like professionals saving for retirement or school.
On the other hand, actively managed mutual funds do provide additional benefits. It is up to you whether you’d prefer a chance at a better return in exchange for slightly greater risk than the steady, more predictable market growth.
However, suppose your time horizon is relatively short, and uncertainties don’t bother you much. In that case, an Index ETF might be the best fit, especially while your money isn’t generating income down the road!
ETF investors should consider funds that have very low tracking errors. Tracking error represents the standard deviation of a fund’s returns compared to its benchmark index.
Standard deviation should be close to zero as possible. However, zero standard deviation isn’t possible statisctically. In case of ETFs , the fund must react with trades to the changes in the index, which means they’ll incur transaction costs.
10 top Exchange Traded Fund list in 2022
For the exchange traded funds list in the USA, visit this link to the SEC’s EDGAR database
|Name of the Fund
|SPDR Select Sector Fund – Health Care
|Invesco S&P 500 Low Volatility ETF
|Direxion Daily S&P Biotech Bear 3X Shares
|Vanguard Value ETF
|iShares MSCI Indonesia ETF
|SPDR S&P Dividend ETF
|JPMorgan Chase Capital XVI JP Morgan Alerian MLP ETN
|iShares Residential and Multisector Real Estate ETF
|Direxion Emerging Markets Bear 3X Shares
|SPDR S&P Insurance ETF
7 pro tips for Exchange Traded Funds for beginners.
After looking at the top exchange traded fund list, let’s look at some tips for beginners.
#1 Dollar-Cost Averaging
Some investors prefer a technique called dollar-cost averaging. They look to invest a fixed amount of money at a consistent phase. It means investing some amount monthly or quarterly and spreading it proportionally across your investments.
It is advisable to buy more shares when prices are low and fewer when they’re high. Young investors are the ones, who typically are in a job for one or two years has a fixed income. They can save a part of their salaries every month when choosing how much to invest and where beginners need to be honest about their capacity for risk.
#2 Asset Allocation
Asset allocation can be an effective way to invest and is an essential part of saving for the future. That way, it helps you get the potential of enjoying better returns and helps you in asset allocation. It can also help manage risk and smooth out volatility in your portfolio.
Exchange Traded Fund (ETF) is one of the most popular tools for implementing asset allocation. They offer extensive diversification at relatively low initial investment requirements.
#3 Swing Trading
If overnight trade happens still swing traders generally hold positions. They’ve opened in hopes of making a profit within a few days or weeks. Unlike day traders, swing traders usually don’t close out their positions until they’re in the green.
They strive to remain as patient as possible while sticking to their predetermined strategy. Traders don’t make hasty decisions based on emotion which might put them at risk of suffering significant losses.
#4 Sector Rotation
Assume there is a stock market bull phase, and an investor wishes to re-balance his portfolio by taking profits in his current holdings and rotating into defensive sectors. A highly liquid ETF such as Consumer Staples Select Sector SPDR Fund (XLP) or Utilities Select Sector SPDR Fund (XLU) may be suitable substitutes for IBB, as these two funds have shown consistent growth during economic bull phases. That is due to rebalancing from longs into sectors that benefit from greater consumer spending like healthcare (XLP) and utilities (XLU).
#5 Short Selling
While short selling can be risky, it is a useful tool for investors who anticipate that a stock’s price will fall. If you think XYZ Company’s stock is overpriced and is due for a correction, then you might sell short shares of the company. Many choose to “short sell” mutual funds or ETFs instead of individual stocks because the risk of a short squeeze is lower.
Mutual funds are created with sufficient assets to borrow shares for short, so there is usually no need to go “into the market” to find shares. Short selling also significantly helps to reduce borrowing costs since unlike other investments there are not large numbers of people trying to take the opposite position.
#6 Betting on Seasonal Trends
Exchange-Traded Funds are beneficial because they allow people who perhaps don’t have the funds necessary to be able to participate in futures trading even though they don’t have a lot of capital and also looking to invest in seasonal trends.
Stock markets tend to go down during The Winter period .Because people tend not to spend money on non-essential items during the coldest months, a trend called the sell in May and go away effect. For reference, U.S. equities’ performance has historically been lower than November through April over the May through October six-month period. This might be attributable to investors holding off until November when they feel their investment will show better profits.
A hedge is an investment option to save you from any negative price changes. Usually, it involves getting the opposite security of your asset bought simultaneously. Nevertheless, ETFs offer beginners a relatively easy, efficient, and cheaper way of hedging.
Stocks and bonds make great vehicles for long-term investments. But there are other assets that can be traded on the global market as well, often called Exchange Traded Funds. Some of what you need to know about these kinds of investments can be helpful especially to beginner traders because they have many unique features which make them a smart investment choice.
Some strategies particularly suitable for beginning investors include: The most important feature of ETFs is that they trade like stocks and are bought and sold on the open market through a broker in real-time during the trading day. For more articles please click a business category.