Pros and Cons of ETFs (Exchange-Traded-Funds)
By: Investam HK
Through online brokers and/or traditional broker or agents [licence broker educated to help investor to choose the proper investment strategy designed for them] the clients can invest to ETF. An alternative to traditional brokers are online-advisors from Investam HK who make use of ETFs in their investment products. You can browse Investam HK site to know more about your professional broker and get the help you want for your investing journey.
Real World Examples of ETFs
Below are some of the renowned examples of ETFs on the market as of today. Most of the ETFs track an index of stocks creating a broad portfolio, while others target certain 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)
Advantages and Disadvantages
Lowering average cost is one of ETFs advantages' since it would be expensive for any investor to buy all stocks individually. With ETF, investors only need to carry out one transaction in buying and selling in exchanges which leads to a fewer broker commissions. A typical broker charge a commission in every trade but there are some who offer no-commission trading on certain low-cost ETFs that reduce costs for investors.
An ETF's expense ratio is the cost to operate and manage the fund. ETFs typically have low expenses since they track an index. For example, if an ETF tracks the S&P 500 index, it might contain all 500 stocks from the S&P making it a passively-managed fund and less time-intensive. However, not all ETFs track an index in a passive manner.
- Access to most stocks across different industries
- Low expense rate and fewer broker commissions.
- Risk management made possible through diversification
- ETF type that focus on single –target industry
- Possible higher fees from Actively-managed ETFs
- limited diversification in Single industry focus ETFs
- Lack of liquidity hinders transactions
Page Updated Last on: Feb 12, 2020