This Year’s Hot Investment: Exchange Traded Funds (ETFs) For Any Investor

Investors are hungry and always looking to find ways to invest in equities outside of the traditional buy/sell approach. While it’s not a new approach to investing, exchange-traded funds (ETFs) have become very popular since their introduction in the early 90’s. These equity instruments are typically seen as a low-risk, low-cost way to diversify your portfolio since they represent a basket of stocks or other securities, rather than investing in one single equity.

This year has been a record year for ETFs. For the first time ETFs have crossed over $1Tn inflows in 2024. This move is significant not only in showing US investor strength and confidence but also represents the diminishing investor interest as it relates to mutual funds.

Why ETFs?

Outside of its diversification attractiveness, ETF’s offer additional and significant advantages that other types of investments such as mutual funds do not offer. For example, ETF’s trade more like stocks. Therefore, an investor who would like to redeem in the middle of a trading day on its mutual fund holding will have a harder time knowing its price as the net asset value is calculated at the end of the day. ETFs trade at market-based pricing and can be purchased on margin and sold short. Additionally, they tend to be more liquid than most stocks. As it relates to cost, ETF’s tend to have lower expense ratios than actively managed mutual funds, resulting in lower fees and can be more tax-efficient as they tend to realize fewer capital gains.

Buyer Beware: Leveraged ETFs

One aspect to take note of when investing in ETFs is leveraged ETF funds that can have skewed returns. These types of investments utilize financial derivatives and debt that can double or triple the return of the underlying index. In that same token, they can double or triple the loss and if held for longer periods of time, can multiply fast.

ETFs For Any Kind of Investor

This Year’s Winner: The Vanguard S&P 500 ETF (VOO) saw the biggest demand so far this year raking in ~$100Bn, according to FactSet.

The Popular New Guy: iShares Bitcoin Trust (IBIT) is the fastest-growing new fund that has attracted $34Bn since it launched in January.

Classic Index Trackers: For those looking to diversify based on index or market cap the traditional ETFs are always a good go-to such as the SPDR S&P 500 (SPY), Invesco (QQQ) which tracks Nasdaq and the iShares Russell 2000 (IWM). For the classic risk taker, the ProShares UltraPro ETF (TQQQ) tracks the Nasdaq-100 Index to 3x the daily performance which makes this a triple leveraged ETF (be careful).

Its Got The Moves: Invesco S&P 500 Momentum ETF (SPMO) tracks stocks in the S&P that have a high “momentum score” which is calculated by measuring the 12-month price change (excluding the most recent month), scaled by volatility (standard deviation of daily returns). This weights each stock giving more weight to those who show consistent price increases versus volatile spikes.

Growth or Value: For either kind of investor there’s an ETF for you. The SPDR S&P 500 Growth ETF (SPYG) provides exposure to S&P companies with the strongest growth characteristics that include sales growth, earnings change to price ratio, and momentum. The SPDR S&P 500 Value ETF (SPYV) provides exposure to S&P companies with the strongest value characteristics based on book value to price ratio; earnings to price ratio; and sales to price ratio.

Playing Defense: The JP Morgan Equity Premium Income Fund ETF (JEPI) is favored for its defensive income-oriented strategy and tracks the undervalued and low-volatility stocks of the S&P. This ETF also includes derivatives with a goal to provide investors with regular income through premiums collected from the options and potential price appreciation from the underlying stocks. Those attracted to this investment are typically in search of stable monthly income over high capital growth.

This One is Solid: The SPDR Gold Trust ETF (GLD) offers a secure way to access the gold market and is the largest physically backed gold exchange traded fund in the world.