Exchange-Traded Fund (ETF): Types and Examples of Popular ETFs

First Let's Look at What is an ETF? 

An exchange-traded fund (ETF) is a collection of securities—such as stocks, commodities, etc.—that tracks an underlying index.

One of the best-known example is the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 Index.

ETFs can contain many types of investments, including stocks, commodities, bonds, or a mixture of investment types.

ETFs are marketable securities: An exchange-traded fund is a marketable security, this implies that it has an associated price that allows it to be easily bought and sold.

  • ETFs can contain all types of investments including stocks, commodities, or bonds; some offer U.S. only holdings, while others are international.
  • An exchange-traded fund (ETF) is a basket of securities that trade on an exchange, just like a stock.
  • ETFs offer low expense ratios and fewer broker commissions than buying the stocks individually.
  • ETF share prices fluctuate all day as the ETF is bought and sold; this is different from mutual funds that only trade once a day after the market closes.

Unlike mutual funds which are not traded on an exchange, and trade only once per day after the markets close, the price of an ETF’s shares will change throughout the trading day as the shares are bought and sold on the market. 

An ETF is called an exchange-traded fund since it's traded on an exchange just like stocks.

An ETF can own hundreds or thousands of stocks across various industries, or it could be isolated to one particular industry or sector. Some funds focus on only U.S. offerings, while others have a global outlook. For example, banking-focused ETFs would contain stocks of various banks across the industry.

An ETF is a type of fund that holds multiple underlying assets, rather than only one like a stock. Because there are multiple assets within an ETF. 

Hence, they can be a popular choice for diversification.

Types of ETFs

Currently, there are various types of ETFs available to investors that can be used for income generation, speculation, price increases, and to hedge or partly offset risk in an investor's portfolio.
There are various types of ETFs available to investors that can be used for income generation, speculation, price increases, and to hedge or partly offset risk in an investor's portfolio. 

Below are several examples of the types of ETFs:

  • Bond ETFs might include government bonds, corporate bonds, and state and local bonds—called municipal bonds.

  • Industry ETFs track a particular industry such as technology, banking, or the oil and gas sector.

  • Commodity ETFs invest in commodities including crude oil or gold.

  • Currency ETFs invest in foreign currencies such as the Euro or Canadian dollar.

  • Inverse ETFs attempt to earn gains from stock declines by shorting stocks. Shorting is selling a stock, expecting a decline in value, and repurchasing it at a lower price.

Note: Investors should be aware that many inverse ETFs are Exchange Traded Notes (ETNs) and not true ETFs. 

An ETN is a bond but trades like a stock and is backed by an issuer like a bank. Be sure to check with your broker to determine if an ETN is a right fit for your portfolio.

In the U.S., most ETFs are set up as open-ended funds and are subject to the Investment Company Act of 1940 except where subsequent rules have modified their regulatory requirements. Open-end funds do not limit the number of investors involved in the product.

Examples of popular ETFs

  • Some ETFs track an index of stocks creating a broad portfolio while others target specific industries.

  • SPDR S&P 500 (SPY): The oldest surviving and most widely known ETF tracks the S&P 500 Index

  • iShares Russell 2000 (IWM): Tracks the Russell 2000 small-cap index

  • Invesco QQQ (QQQ): Indexes the Nasdaq 100, which typically contains technology stocks

  • SPDR Dow Jones Industrial Average (DIA): Represents the 30 stocks of the Dow Jones Industrial Average

  • Sector ETFs: Track individual industries such as oil (OIH), energy (XLE), financial services (XLF), 

  • REITs (IYR), Biotech (BBH)

  • Commodity ETFs: Represent commodity markets including crude oil (USO) and natural gas (UNG)

  • Physically-Backed ETFs: The SPDR Gold Shares (GLD) and iShares Silver Trust (SLV) hold physical gold and silver bullion in the fund

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