Global ETF and ETF, focused on emerging markets, allow investors to diversify their investments, not limited to the United States, as well as to receive income from the growth of economies of other countries.
According to the International Monetary Fund (IMF) estimates from 2012, emerging economies are growing two or three times faster than the United States and other developed countries.
Among the attractive qualities of emerging markets are the increase in the number of workers, the increase in the level of consumption and also the relatively low level of debt.
Investors are looking for high yield in emerging markets – which is the result of potentially high rates of economic growth. However, it should be understood that high risks go hand in hand with profits, including possible political instability, currency fluctuations and lower liquidity.
iShares MSCI Emerging Markets ETF is a giant in the ETF world. As of 2016, it manages assets in excess of $ 31 billion. In addition, it is one of the most actively traded ETFs in the world — on average, more than 39 million shares are sold daily.
For 2016, the MSCI Emerging Markets Index covers 23 developing countries, including Brazil, Chile, China, Colombia, the Czech Republic, Egypt, Greece, Hungary, Qatar, the United Arab Emirates, India, Indonesia, Korea, Malaysia, Mexico, Peru, the Philippines, Poland , Russia, South Africa, Taiwan, Thailand and Turkey.
Vanguard FTSE Emerging Markets ETF tracks FTSE Emerging Index. This weighted index tracks the market capitalization of about 850 large and medium-sized companies in 22 emerging markets.
The fund was launched in 2005 and as of 2016 manages assets in excess of $ 55.9 billion. This fund is less liquid than the iShares MSCI Emerging Markets ETF – the average daily trading volume is 17 million shares sold – but the expense ratio is lower – 0.19%.
iShares MSCI EAFE is another giant fund, this time aimed at developed economies. As of 2016, he manages assets of more than $ 58 billion, with an average trading volume of more than 9 million shares sold daily. The expense ratio is 0.33%.
Tradable exchange-traded index investment funds can also be used to hedge risk. For example, long positions in the stock market could be hedged with a short position in an ETF based on a stock index or by buying an ETF that is inverse to a stock index. They are also popular among speculators due to the high level of liquidity and volatility, as well as low rates for entering and exiting a position.
The cost of ETFs based on stock indices is influenced by several major factors, such as the output of companies ’reports, changes in the economic indicators of certain markets and geopolitical news.
Traded exchange index investment funds are designed to track certain indices and, accordingly, the dynamics of their value is a reflection of the dynamics of the index.
State Street Global Advisors, a management company, launched the SPDR fund S & P 500 ETF in January 1993. Sometimes it is called the shares of spiders in English spider – it is a spider.
SPDR tracks the S & P 500 index, based on the market capitalization of 500 large companies whose common shares are traded on the New York Stock Exchange or NASDAQ. Unlike the Dow Jones Industrial Average, which includes only 30 companies, SPDR is considered an index reflecting the state of the US stock market.
This fund provides investors with access to a segment of the US securities market, where small-cap companies are represented. The Russell 2000 Index consists of the 2000 smallest companies of the Russell 3000 Index.
Such stocks offer great growth potential, but the risks are higher. It was noted in the past that small company shares feel good in the face of rising interest rates.
The NASDAQ 100 index includes the largest in terms of market capitalization, American and international non-financial companies whose shares are traded on the NASDAQ exchange.
His actions are sometimes called diamonds (here again the word diamond in English is diamond). The fund is managed by State Street Global Advisors and monitors the Dow Jones Industrial Average index – this is a weighted index of 30 US blue chips, that is, the largest public companies. It is one of the oldest indices in the world and many funds and traders are guided by it.
Vanguard Total Stock Market ETF was launched in 2001 for those who want to invest in the US stock market as a whole. The fund provides a simple and inexpensive way to diversify a portfolio consisting of stocks of large companies.
VTI tracks the CRSP US Total Market Index – a benchmark showing the return on investment of the entire US stock market. The index includes stocks of high, medium, small and ultra-low capitalization companies that regularly trade on the New York Stock Exchange and NASDAQ.
Commodities are one of the types of assets that in recent years have not been very accessible to the retail investor. Before the advent of ETF, it was possible to invest in raw materials almost exclusively in the futures market.
It should be borne in mind that commodity prices tend to rise as inflation accelerates and this makes them an important hedge against rising prices, protecting the purchasing power of investor’s capital.
Also commodities are valuable in terms of diversification. It is known that the value of bonds is only minimally correlated with the price of shares, which makes them an effective tool for diversifying investments. Commodity goods provide even greater diversification, since, as historical data show, they negatively correlate with both stocks and bonds.
The fund was established to track the spot prices of gold bullion, and each share represents a one-tenth share of the gold owned by the fund.
SPDR Gold Shares are physically secured, that is, the shares they issue reflect real stocks of the precious metal. Gold is held at the HSBC London depository.
When the price of gold rises or falls, SPDR Gold Shares also go up or down. The main factors affecting its value are the level of production, the level of demand, the value of the dollar and the policy of the central bank.
The second largest ETF based on one particular product is the iShares Silver Trust. It was launched in 2006. It is operated by BlackRock and is designed to track the spot value of silver bullion.
Like GLD, the SLV stock symbolizes owning just under one ounce of silver. The main factors affecting the price of silver are industrial and consumer demand, the cost of gold and the value of the dollar.
Launched in 2006, the fund tracks light oil futures traded on the New York Mercantile Exchange (NYMEX, owned and operated by the CME Group).
NYMEX light oil futures are one of the most liquid stocks, reflecting the cost of crude oil, and one of the most actively traded energy stocks in the world.
Factors affecting the price of crude oil are: supply (production), reserves, demand and geopolitical events. An increase in the level of production and reserves, as a rule, lowers prices, and a decrease, on the contrary, raises. Geopolitical events, including in the Middle East, can also affect the market – if there is a threat to the volume of production, oil becomes more expensive.
The United States Natural Gas Fund LP was launched in 2007 and this is another major ETF in the energy sector. It tracks NYMEX natural gas futures and these are the most liquid contracts for this type of fuel.
Factors affecting the price of natural gas are the level of production and imports. The fullness of underground storage, the cold or warm season and the price of oil. As in the case of oil, an increase in the level of production and reserves, as a rule, will lead to lower prices – and vice versa. Oil prices and weather affect demand – in some cases, oil is seen as a potential substitute for natural gas.
The fund tracks the DBIQ Optimum Yield Diversified Commodity index, which consists of futures contracts for the 14 most liquid physical goods in the world, including energy, agriculture and metals. It includes WTI light crude oil, fuel oil, RBOB gasoline, natural gas, Brent oil, gold, silver, aluminum, zinc, copper, corn, wheat, soybeans and sugar.
The rapid increase in the number of ETFs indicates their popularity among investors and their effectiveness as a tool for asset allocation. Such funds provide a universal and economical tool for portfolio diversification for small and large investors. It is important to note that, unlike mutual funds, the high level of transparency offered by ETFs gives investors a clearer idea of what they invest in.