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Type and Category of ETFs

There are various types of ETF which can be invested by an investor. With the availability through your local broker, you can access up to thousands of ETFs around the world. Now, let us go through the commonly available ETFs.

What would you discover?

  • Common Types of ETFs
  • Category of ETFs – Passive and Actively-Managed ETFs

Common Type of ETFs

Industry ETFs

These ETFs contains assets of a particular industry sectors such as technology, semiconductors, construction and banking. It is a popular choice which allows anyone to focus to a particular sector which is performing during that time.

Bonds/Fixed Income ETFs

These ETFs contains government bonds, corporate bonds and local bonds. These bonds and fixed income investments are generally more less risk than equities and potentially provide a steady return.

Commodity ETFs

These ETFs are investing into commodities such as gold, silver, copper and oil. While owning it physically may not be too accessible, anyone can purchase these ETF conveniently and form as a diversification to stocks.

Currency ETFs

These ETFs are invested into currencies of a particular country or a basket of currencies. It can be purchased conveniently like stocks without owning the currency physically.

Inverse ETFs

Inverse ETFs gains in value when the target index goes down. It attempts to earn from stock declines by shorting a stock and repurchasing it at a lower price.

Leverage ETFs

Leverage ETFs would track a particular index with leverage to a specific value to maximize potential returns (or potential loss). If it is being leverage 2x, it would increase 2x in value if the tracked assets is increase 1x.

Thematic ETFs

Thematic ETFs invest into a specific niche industry within a industry sector. An example is investing into an Electric Vehicle (EV) industry within the larger automotive industry sector. As this type of ETF has higher volatility, it would outperform the larger industry sector ETF when it is performing and vice versa, underperform when it is not not going well.

Category of ETFs – Passively and Actively-Managed ETFs

A passive-managed ETF would just track the specific index, such as S&P500. Since it does not require any managers to manage the fund, it offers lower expense ratio, which is the costs to operate and manage the fund. For an investor which prefers a steady potential return of an index, this would be the best choice.

As contrary to a passively-managed ETF, there is also an actively-managed ETFs. Actively-managed ETFs are ETFs which have portfolio managers actively managing the fund by buying and selling the assets. Investors for these ETFs would believe that a professional manager would be achieving better returns as compared to just tracking a particular index.

Whether it is the right choice to own a passively or actively-manage ETFs, it would really depend on the rate of return to the investor after deducting the expense ratios. Furthermore, different ETFs require different timeline to have its value maximized.

Don Chew
A CFP holder with an engineer's mind with interest in technology, design, innovation and of course, personal finance. Believes design and automation would solve most challenges in our everyday lives. A hobbyist videographer but still far from being even a beginner. Life principles - Joy.