Investing - Investment Areas of ETFs

   contents

The number and investment areas of ETFs have exploded in the last few years. This is an overview of the ETF areas in common use. When choosing, also consider fees and liquidity (smaller funds can be harder to trade).

Stocks (mostly capital gains rate income taxes)

    Stock Category

• total market
• value
• growth
• dividend - high dividends (for stocks), some funds screen for quality, provides income and growth
• dividend growth - growing dividends (which imply quality), provides growing income and growth
• dividend with covered calls - dividends and covered call premiums, but growth is capped

    Management Strategies

• pure index - tracks a rules based index, low turnover
• market-cap weighting - most common, largest companies dominate the return
• equal weighting - reduces large cap dominance, more rebalancing
• active management, momentum - favors stocks with good recent performance
• active management, covered call - adds income, caps growth
• active management, low volatility - tries to reduce downside, likely reduces growth, advantage if you withdraw capital for income
• active management, leveraging to increase returns - tries to amplify returns, high risk

    Market-Cap (size of the corporations, stock price times number of shares)

• large cap
• mid cap
• small cap
• total market - all sizes, if market-cap weighted then large caps dominate

    Operating Space

• total market
• technology
• healthcare
• financials
• energy
• utilities
• REIT (real estate invesment trust) - high income, tax issues
• artificial intelligence
• computer memory and storage
• computer connectivity optics
• small scale nuclear power
• semiconductors

    Geography/Currency

• US
• international, currency hedged - reduces currency risk
• international, currency unhedged - adds currency risk/reward
• global, currency hedged - reduces currency risk
• global, currency unhedged - adds currency risk/reward

Bonds (mostly income rate income taxes)

    Duration (affects volatility risk)

• ultra-short - low interest rate sensitivity, close to money market
• short
• intermediate
• long - interest rate sensitive, benefits from falling yields, falls when yield rises

   Strategies

• pure index - tracks bond index, low turnover
• active management, total return - tries to increase return by trading principal
• active management, high income - aims for high, regular payout

    Issuer/Currency

• government/treasury - low risk if you believe that the government will never default
• corporate - higher yield, riskier than government
• municipal - lower pre-tax yield, tax advantages
• international government/treasury hedged - reduces currency risk
• international government/treasury not hedged - adds currency risk/reward
• global government/treasury hedged - reduces currency risk
• global government/treasury not hedged - adds currency risk/reward

    Credit Risk

• investment-grade - lower yield, lower default risk of default
• high-yield - higher yield, higher risk of default