What Is Exchange Traded Fund – ETF?

ETF is a type of security that tracks the movement of index, prices of commodity, currency, bonds and many other available assets. It is being traded like a stock in the exchange where investors are able to perform buying and selling of ETF.

Why Trade ETF?

Index & Sector Investing

ETF provides investors a variety of investment opportunities, instead of getting a single return by investing in one company; investors get the chance to receive the return of a group of companies. This reduces the risk of investing in one single company which gives negative return.

Imagine if you decide to invest in Company A in the banking sector, which turns out to give a negative return of 20% due to whatever reasons (scandal,  lawsuit, bad earnings). However, by investing in ETF which tracks the movement of a group of banks, the positive return of other banks will offset the negative return of Company A.

Example below:

Company Return
A -20%
B +10%
C +18
D +15
E +17
Scenario Company A ETF (A,B,C,D,E,F)
Investment Amount $10,000 $10,000
Return -20% (-20+10+18+15+17)/5 –> 8%
Value $8,000 $10,800

The downside? Well investor could miss out the higher return of companies which are performing very well. The question is, how good are you in picking the right company?

Below are some of the popular ETFs based on Index & different sector listed on NYSE ARCA Exchange. More information can be found on https://www.spdrs.com/

Ticker Symbol Type
SPY S&P 500 Index
DIA Dow Jones Industrial Average Index
XHB Homebuilders
XLY Consumer Discretionary
XLP Consumer Staples
XLE Energy
XLF Financials
XLV Health Care
XLB Materials
XLK Info Tech
XLU Utilities
XRT Retail
XOP Oil & Gas Exploration & Production
XES Oil & Gas Equipment & Services
KIE Insurance
KME Mortgage Finance
KBE Banks
KRE Regional Banks
XHS Health Care
XHE Health Care Equipment
XBI Biotech Select
XPH Pharmaceuticals
XTN Transportation
XAR Aerospace & Defense
XLI Industrial
XME Metals & Mining
XSW Software & Services
XSD Semiconductor Select
XTL Telecom

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