What is an ETF (Exchange-Traded Fund) and its Types?

What is an ETF (Exchange-Traded Fund) and its Types?

What is an ETF (Exchange-Traded Fund) and its Types?

An ETF is a type of investment fund that holds assets such as stocks, commodities, bonds, or
foreign currency. An ETF is traded like a stock at fluctuating prices throughout the trading day.
They frequently track indexes such as the Nasdaq, S&P 500, Dow Jones, and Russell 2000

Investors in these funds do not directly own the underlying investments, but rather have
an indirect claim to a portion of the profits and residual value in the event that the fund is
liquidated. Their ownership shares or interests are easily purchased and sold on the secondary
market.

What Are the Different ETF Types?

Stock ETFs

are similar to index funds in that they hold a specific portfolio of equities or stocks.
They can be treated similarly to regular stocks in that they can be bought and sold for a profit
and are traded on an exchange throughout the trading day

Index ETFs

imitate a specific index, such as the S&P 500 Index. They can cover specific
industries, stock classes, or foreign or emerging market equities.

Bond ETFs

are exchange-traded funds that invest solely in bonds or other fixed-income
securities. They may specialize in a specific type of bond or provide a broadly diversified
portfolio of bonds of various types and maturities.

Commodity ETFs

invest in physical commodities such as agricultural commodities, natural
resources, or precious metals. Some commodity exchange-traded funds may hold a
combination of physical commodity investments and related equity investments – for example, a
gold ETF may have a portfolio that includes physical gold as well as stock shares in gold mining
companies.

Currency ETFs

invest in a single currency or a basket of currencies and are widely used by
investors seeking exposure to the foreign exchange market without directly trading futures or
the forex market. These ETFs typically track the most popular international currencies, such as
the US dollar, Canadian dollar, Euro, British pound, and Japanese yen.

Inverse ETFs

An inverse exchange-traded fund is formed by using various derivatives to
profit from short selling when the value of a group of securities or a broad market index falls.

Actively Managed ETFs

These ETFs are managed by a manager or a team of investment
professionals who decide how to allocate portfolio assets. They have higher portfolio turnover
rates than index funds, for example, because they are actively managed.

Leveraged ETFs

Exchange-traded funds that primarily consist of financial derivatives and
allow investors to leverage their investments, potentially amplifying gains. These are typically
used by speculators seeking to capitalize on short-term trading opportunities in major stock
indexes.

Real estate ETFs

These are funds that invest in real estate investment trusts (REITs), real
estate service companies, real estate development companies, and mortgage-backed securities
(MBS). They may also own actual physical real estate, such as undeveloped land or large
commercial properties.