Staying on top of ETFs
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While mutual funds are the reigning heavyweights of the financial services industry, exchange traded funds that track small nooks and crannies of the investment world are growing in numbers even as they become more exotic.
Some more recent creations in this exploding industry sector include exchange traded funds that invest in only those companies associated with smart phones (FONE), companies solely focused on providing water (PHO) or companies that have substantial assets or revenues in the country of Argentina (ARGT).
"ETF providers seem ready to adapt Apple's marketing slogan, 'We have an app for that,' and say, 'We have an ETF for that,'" said Cameron Short, a financial adviser with Stifel Nicolaus & Co., Downtown.
Exchange traded funds, or ETFs, are investments that try to replicate the performance of a stock market index such as the S&P 500 or a market sector such as energy and technology or commodities such as gold or silver.
ETFs are similar to mutual funds in that they offer investors partial ownership of an undivided pool of stocks and other assets. But the funds also offer exposure to many areas of investment that mutual funds do not.
Those currently on the market allow individuals to invest directly in 32 countries, 16 commodities, 14 currencies and 30 parts of the bond market.
Some of the funds invest in a broad basket of commodities while others place very narrowly focused bets on industries like solar energy or nanotechnology. There are ETFs that invest in just wheat or just corn.
"There are no mutual funds that allow me to track the Japanese yen, Swiss franc or the Mexican peso," said Matthew Tuttle, CEO of Tuttle Wealth Management in Stamford, Conn. But, "There are ETFs that allow you to track those currencies.
"Mutual funds allow you to bet for or against the dollar or have an actively managed currency fund. But if you want to bet on any nondollar currency, you need an ETF for that."
Having gained so much attention from retail investors in recent years, the number of exchange traded funds on the market has grown to about 1,100 since the very first one, SPDR S&P 500 (SPY), was launched in 1993.
The Investment Company Institute reported in January that the value of the combined assets under management in the nation's ETFs had topped $1 trillion. That is still a far cry from the $11 trillion invested in mutual funds.
First Published March 9, 2011 12:00 am
