Types of ETFs (Part 3)

Commodity ETFs

Commodity ETFs offer investors to invest in commodity, which offer as an alternative to buying physical commodity or futures contract. Inverse commodity ETFs are also available, which allow investors to make profit when the prices of commodity fall, as well as leverage commodity ETFs which allow investor to double the return.

Below are some of the commodity ETFs:

Ticker Symbol Commodity ETF
GLD Gold Trust
USO Crude Oil
UCO Crude Oil (2x)
SLV Silver Trust
BOIL Natural Gas (2x)
SCO Short Crude Oil (-2x)
KOLD Short Natural Gas (-2x)
GLL Short Gold (-2x)
ZSL Short Silver (-2x)

More information can be found from:

https://www.spdrs.com

http://www.proshares.com/

http://www.ishares.com

How Do You Evaluate ETF?

The best way to protect investors in investing ETF is to read the prospectus, and understand the strategies, costs, risks and investment goals. The ETF prospectus can be obtained from the website of the company that manage and issue the commodity ETFs, else, get it from the broker.

Risk of ETF?

It is possible that the fund manager committed mistakes and result in tracking the movement of the underlying assets. This is known as tracking error which causes the investor to suffer unrealised losses if he/she chooses to buy or sell during the period of tracking error. This is even more likely with leverage and inverse ETFs, since it requires more complex skills for the fund manager to perform the tracking.

Types of ETFs (Part 2)

Leverage ETFs

Leverage ETF allow investors to boost their return 2 or 3 times higher. For example, should S&P 500 index goes up 1 percent, leverage ETF would provide a gain of 2 or 3 percent. However, the losses will be magnified should the index fall. A 1 percent loss of the index will convert to 2 or 3 percent loss with leverage ETFs.

How the underlying performance of leverage ETFs can be achieved by the fund manager is by using derivative instruments such as future contracts, equity swaps and etc.

Below are some of the Leverage ETFs:

Ticker Symbol Market Type
UDOW Dow 30 Index (3x)
SSO S&P 500 Index (2x)
XPP FTSE China 25 Index (2x)
UPV MSCI Europe Index (2x)
DXD Short Dow 30 Index (-2x)
SPXU Short S&P 500 Index (-3x)
EWV Short MSCI Japan (-2x)
EEV Short MSCI Emerging Markets Index (-2x)
URTY Russell 2000 Index (3x)

For information can be found from http://www.proshares.com/

Currency ETFs

Currency ETFs are available as an alternative channel for exposure to foreign currency investment. For example, Exchange rate for Australian Dollar (AUD) to US Dollar (USD):

1 AUD = 1.0210 USD

Ticker Symbol for Currency ETF → FXA

Price of FXA → 102.10

Should AUD gets stronger and USD gets weaker, prices of FXA will go up, and investor will make capital profit.

Below are some of the Currency ETFs:

Ticker Symbol Currency ETF
FXA Australian Dollar Trust
FXB British Pound Sterling Trust
FXC Canadian Dollar Trust
FXCH Chinese Renminbi Trust
FXE Euro Trust
FXY Japanese Yen Trust
FXM Mexican Peso Trust
FXRU Russian Ruble Trust
FXS Swedish Krona Trust
FXF Swiss Franc Trust

For information can be found from http://www.currencyshares.com/

Types of ETFs (Part 1)

Other than index and sector ETFs, there are other types of ETF which allow investors to invest.

Regional & Country ETFs

ETFs are available if investors are interested to invest in other regional markets index such as the BRIC (Brazil, Russia, India, China), or indexes in different countries, such as Japan, Germany and Hong Kong.

Below are some of the ETFs:

Ticker Symbol Market Type
BIK S&P BRIC 40 Index
FEU STOXX Europe 50 Index
AIA S&P Asia 50 Index
GML S&P/Citigroup BMI Latin America Index
GAF S&P/Citigroup BMI Middle East & Africa Index
VWO MSCI Emerging Markets Stock
MCHI MSCI China Index
RBL S&P Russia Capped BMI Index
EWJ MSCI Japan Index
EWH MSCI Hong Kong Index
EWA MSCI Australia Index
EWG MSCI Germany Index
EWS MSCI Singapore Index
EWM MSCI Malaysia Index

More information can be found from companies below who manage the ETFs :

Inverse ETFs

ETFs are available if investors are interested to make gains by betting against the direction of the market. In order words, short selling by buying the ETF. So let say you feel that S&P 500 index is going to fall due to some kind of financial shock news, and you decide buy ProShares Short S&P500 (ETF). So when S&P 500 index drop points, you make money.

A good scenario would be during a bear market, where all the stocks and indexes are declining. Instead of selling away the holding stocks which give investors high dividend yield, investors can buy inverse ETF to hedge against potential capital losses.

Below are some of the inverse ETFs:

Ticker Symbol Market Type
SH Short S&P500 Index
DOG Short DOW 30 Index
PSQ Short NASDAQ-100 Index
EUM Short MSCI Emerging Market Index
RWM Short Russell 2000 Index
YXI Short FTSE Xinhua China 25
SBM Short Dow Jones U.S. Basic Materials Index
DDG Short Dow Jones U.S. Oil & Gas Index
REK Short Dow Jones U.S. Real Estate Index

More information can be found from company below who manage the above inverse ETFs :

http://www.proshares.com/

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