With the recent advent of the Gold ETF, better know as the StreetTracks Gold Trust (GLD), interest continues to build exponentially on Exchange-Traded Funds (ETF). For those that don't know, the GLD tracks the price of gold and trades just as a stock would. It is by far the easiest way for an investor to actually buy gold without having to worry about where to store or how to quickly sell the gold. This is exactly why ETFs are quickly becoming extremely popular, they make it very easy to buy and sell an entire industry (or sector) without having to worry about picking the right stock in the sector you like.
Allow me to provide a quick explanation on what ETFs are and that they do. ETFs are investments that track a particular index, a broad sector, or a group of international stocks through a basket of securities. Although they are constructed like mutual funds, ETFs trade like individual securities on stock exchanges. This gives investors the best of both worlds, as ETFs combine the conservative diversity of a mutual fund with the flexibility of a stock. Almost anything that can be done with a stock can be done with an ETF.
Although GLD has stolen most of the headlines recently in the world of ETFs, another significant development surfaced this week without much fanfare. The Investment Company Institute announced that total ETF assets rose to $190.5 billion in October, versus an increase to $181.4 billion in September. For the year, investors have poured nearly $40 billion into ETFs.
When one sees numbers like this it is clear that the future is indeed bright for ETFs, as the crowd is just beginning to take notice of all that ETFs offer.
Delving into the numbers a little more, we see that ETFs tied to bonds accounted for only $7.8 billion, or only four percent of the total assets in the U.S. From this point of view, we see that there is a substantial amount of room for investors to pile into bonds, which could be bullish in the longer-term.
However, with over 149 ETFs to choose from, as of the end of October, how do you know which one might be right for you? To help our subscribers ride this wave of interest in ETFs, we recently opened a new page on our website devoted specifically to following ETFs called the ETF Center. Follow this link to the ETF center, where you will also find a detailed explanation of ETFs, should you have any further questions.
Here at Schaeffer's, subscribers to our new ETF Master Portfolio have benefited mightily from Bernie's expertise in which sectors to play and which ones to avoid. Since its inception in May 2004, the ETF Master Portfolio has gained slightly less than 14 percent, doubling the S&P 500's (SPX) gain of seven percent. A few examples of the sectors that Bernie has been bullish on this year includes metals, energy, Internet, steel, and oil services. Just as importantly, he has avoided the lagging Big Cap stocks and Pharmaceutical companies that so many analysts recommend.
With ETFs providing the flexibility and diversity that investors demand, it might be worth a few minutes to take a closer look at this new investment vehicle to see if it is right for you.Ryan Detrick (rdetrick@sir-inc.com)
Schaeffer's Investment Research's contrarian approach focuses on stocks with technical and fundamental trends that run counter to investor expectations. We call this Expectational Analysis®. Click here for details.
