ETF's have grown in popularity in recent years in response
to the opportunity to participate in an asset class or sector move.
Exchange traded funds represent a basket of stocks and provide 'broad'
based exposure to a group of stocks instead of having exposure to
just one individual stock. There are a number of different create
ETF strategies that can be employed. Some common ETF strategy approaches
will be discussed further.
Sector Exposure
ETF lend themselves to a number of economic or sector based strategies.
As an inflation hedge or to counteract times of uncertainty, investors
can take positions in precious metals or gold based exchange traded
funds. The Market Vectors Gold Miners ETF, iShares COMEX Gold Trust
and Powershares DB Precious Metals are examples of available ETFS.
Emerging Market Exposure
The growth in India, China and Brazil in recent years has prompted
some astute investors to consider how to gain exposure to theses
growing economies. With the difficulties of dealing with overseas
regulatory requirements, gaining entry to the markets and facilitating
foreign exchange transactions, investors can buy ETF's which comprise
a basket of stocks traded on overseas markets. The iShares MSCI
Brazil Index, Wisdom Tree Emerging Market, First Trust ISE Chindia
and Xinhau 25 Index are popular choices for foreign emerging market
exposure.
Dividend Growth
The Wisdom Tree company creates many ETF based products that comprise
high yielding stocks in international markets and different sectors.
As an income and capital growth ETF investment strategy, you can
purchase a high yielding ETF in a sector you consider likely to
encounter favorable conditions. Examples include Wisdom tree International
Top 100, Wisdom Tree Small Cap Dividend and Wisdom Tree International
Large Cap.
Pairs Trading
Sophisticated ETF strategies can employ market neutral or biased
positions that comprise long/short combinations of stocks and exchange
traded funds.
Hedging
Another ETF strategy is the use of ETF products as a hedge. These
can be used in combination with stock, futures or options positions.
Portfolio Composition
Accumulating positions in ETF's can be employed as a long term ETF
strategy. Allocating money on a regular basis to purchase ETF's
is similar to a stock investment plan that pursues capital growth
over time.
Next article: ETF
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