What is ETF?

What is ETF? ETF or Exchange Traded Fund is a mini-portfolio of stocks (or bonds) that can be traded over a stock exchange like other securities such as stocks. For example, the Vanguard S&P 500 ETF (symbol VOO) is made of 514 securities and it aims to mimic the performance of the S&P 500 Index. VOO can be purchased and sold like any other stock such as Apple (AAPL) or Microsoft (MSFT). Most of the popular Exchange Traded Funds can be traded on apps like Robinhood, M1 Finance, WeBull, etc. In this article, we will look at the index and thematic ETFs such as ETF for NASDAQ, Dow Jones, Genomics, High Dividend, AI, etc. We will compare the performance, PE ratios, and Dividend yields of the popular Vanguard ETFs for growth, value, and dividend investors. Below, we will also discuss leveraged ETFs (that amplify the returns) and whether are they good for holding long term.

ETFs can be created with multiple objectives. Many of them are created to passively track the performance of an index such as the S&P 500. Many others do not track any specific index, but rather focus on a particular sector or niche, for example, ARKQ focuses on Artificial Intelligence, SDY focuses on high dividend stocks, etc.

Why use ETF?

As a mini-portfolio, an ETF reduces the investor risk by diversifying into multiple assets.

ETFs facilitate an investor to invest in a particular sector without picking multiple company stocks individually. For example, for betting on technology, an investor can invest in QQQ instead of buying multiple tech stocks.

An average investor might find investing in a set of ETFs a lot easier than managing multiple sub-portfolios themselves (1 ETF each for AI, Cloud, and healthcare instead of 10 stocks for AI, 20 stocks for cloud computing, 15 stocks for healthcare, etc.)

Investors must make informed decisions before allocating their money to any financial instrument. Please read the articles below to understand the features, similarities, and differences.

ETF vs Stock Picking

ETF vs Mutual Fund

Basic Terminology of ETFs

Expense Ratio

Expense Ratio: Think of it as fees paid for investing in a fund. For example, a 0.03% expense ratio on IVV means you’d pay $0.30 (30 cents) per $1000 invested in IVV every year.

AUM or Assets Under Management

AUM or Assets Under Management is the total market value of the assets held by the Fund. For example, for SPY the AUM is $ 305B and for VOO the AUM is $ 169B even though they both track the same index (S&P 500) because SPY manages more ‘quantity’ of underlying assets than VOO.

ETFs for S&P 500 Index

The three popular ETFs for tracking the S&P500 Index are the following:

• IVV: iShares Core S&P 500
  • expense ratio 0.03%
• SPY: SPDR S&P 500 ETF Trust
  • expense ratio 0.09%
• VOO: Vanguard 500 Index Fund
  • expense ratio 0.03%

ETFs for Russell 2000 Index

A popular ETF for tracking the Russell 2000 Index is the following:

• IWM: iShares Russell 2000
  • expense ratio 0.19%

ETF for NASDAQ Index

A popular ETF for tracking the NASDAQ index is the following:

• QQQ: Invesco QQQ Trust Series 1
  • expense ratio 0.20%

ETFs for High Dividend

Two popular ETFs for investing in high dividend stocks are the following:

• SDY: SPDR S&P Dividend
  • expense ratio 0.35%
• VYM: Vanguard High Dividend Yield
  • expense ratio 0.06%

ETF for Genomics

A popular ETF for investing in genomics is the following:

• ARKG: ARK Genomic Revolution
  • expense ratio 0.75%

ETF for DOW Jones Industrial Average Index

A popular ETF for tracking the Dow Jones Industrial Average Index is the following:

• DIA: SPDR Dow Jones Industrial Average ETF Trust
  • expense ratio 0.16%

ETF for Dividend Growth

A popular ETF for investing in companies that grow dividends is the following:

• VIG: Vanguard Dividend Appreciation Index Fund
  • expense ratio 0.06%

ETFs for Blockchain

Two popular ETFs for investing in blockchain stocks are the following:

• BLCN: Reality Shares Nasdaq NexGen Economy
  • expense ratio 0.68%
• BLOK: Amplify Transformational Data Sharing
  • expense ratio 0.70%

ETFs for AI (Artificial Intelligence)

Two popular ETFs for investing in AI stocks are the following:

• AIQ: Global X Artificial Intelligence & Technology
  • expense ratio 0.68%
• ARKQ: ARK Autonomous Technology & Robotics
  • expense ratio 0.75%

Take advantage of the current promotions (free stocks at Robinhood and WeBull, free cash at M1 finance) and get started with investing in ETFs.

Is there an ETF for Covered Calls?

If you know about stock options, you must have heard about the income generation strategy through selling covered calls. Probably, you would have also thought – ‘Wouldn’t it be great if someone else would do the hard work of researching and selling covered calls to generate some income?’.

You’re in luck! XYLD does exactly that.

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XYLD is the symbol for S&P 500 Covered Call ETF

XYLD has an expense ratio of 0.60% and approximately $600 M in Assets Under Management as of October 2021. Writing Covered Calls can generate high income during the high volatility in the market. XYLD sells covered calls on the S&P500 index.

The Global X S&P 500 Covered Call ETF (XYLD) follows a “covered call” or “buy-write” strategy, in which the Fund buys the stocks in the S&P 500 Index and “writes” or “sells” corresponding call options on the same index.

The Global X S&P 500 Covered Call ETF (XYLD) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Cboe S&P 500 BuyWrite Index.

Source: GobalXETFs

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Updated: March 31, 2022 by FinPins