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What Kinds of ETFs Exist?

There are many ETFs on the market and more popping up all the time. Currently, there are over 900 ETFs available on the market, covering basically every market sector, industry, commodity, asset class, country, style of investing on the stock market. The amount of money invested in ETFs has increased exponentially over the last decade and is likely to continue in that direction. Many more ETFs are introduced to the market every year, many with different and creative strategies that have never been available in a single investment product before. These might use Forex, rate swaps, CMOs, futures, options, short-selling, and other advanced or institutional trading strategies, to create a new kind of position in a sector, industry, or geography to which the investor wants to gain exposure. Continue reading...

What does Leverage Mean?

Leverage is the use of borrowed capital or debt to try and increase the potential return of an investment. An individual might leverage an investment account by going on margin to purchase additional securities, whereas the amount of debt used to finance a company’s assets is considered to be that company’s level of leverage. A firm with significantly more debt than equity is considered to be highly leveraged. Continue reading...

What is Operating Leverage?

Operating leverage is a measure of how critical each sale of a company is to overall cash flow. If a company has high operating leverage, it means that it relies on fewer sales with very high gross margins, versus a company with low operating leverage that experiences higher levels of sales with lower gross margins. As an example, a convenient store has less operating leverage than a business that sells yachts. Continue reading...

What is a Leveraged Buyout?

A leveraged buyout occurs when members of management use outside borrowed capital to buy a controlling share in the company. Often times, the assets of the company being acquired are used as collateral for the borrowed capital. The purpose of leveraged buyouts is to acquire another company without having to commit a lot of working capital up front. In a typical leveraged buyout, you may see a ratio of 90% debt financing to 10% equity used to acquire the company. Continue reading...

What is a Leveraged Loan?

A leveraged loan is a commercial loan that is generally created by a few participants, and packaged and offered by one or several investment banks. Leveraged loans are typically targeted at companies that already have a significant amount of debt and may be limited in their options to access capital elsewhere. They are considered on the higher end of the risk spectrum. Continue reading...

Should I Use Double or Triple ETFs?

Double or triple ETFs can be very volatile investments, so an investor should be aware of the risks involved. By using future contracts to gain maximum leverage, ETFs known as Double or Triple ETFs offer magnified exposure to specific indices. Double and triple ETFs provide double or triple returns, but also incur double or triple losses. For this reason, double and triple ETFs are an extremely risky investment, Day traders and institutional investors make use of these products as short-term hedging strategies or speculative bets. Continue reading...

What are Double and Triple ETFs?

Double and triple ETFs are also known as leveraged ETFs, and their goal is to magnify the performance of the index they follow. Using futures contracts and other derivative instruments, 2x or 3x ETFs attempt to magnify the performance of an index, with the goal of achieving the result daily. Because they also compound daily, they are not usually held for more than a few days. These are also called leveraged ETFs because they use margin, futures contracts, and other derivative instruments to give an investor this magnified exposure. They give you two or three times (respectively) the profits but also two or three times the losses, so one must be very cautious when dealing with them. Continue reading...

What are Bear Market Funds?

Bear market funds are designed to profit when the market or sector they follow declines. Bear Market Funds make money in declining markets, as opposed to Bull Market Funds. If you’re bearish on a sector, industry, commodity, the market, or anything else that’s tradable, rest assured that you’ll find a Bear Market Fund for it. There are also 2X Bear Market Funds, 3X Bear Market Funds, etc…, which use margin, short-selling, and derivative instruments to acquire large leveraged positions. Continue reading...

What is a Dividend ETF?

Dividend ETFs invest primarily in preferred stock and stocks that pay regular dividends. Strategically, they tend to be either Dividend Appreciation or High Yield. Dividend ETFs are equity dividend funds that seek income from preferred stocks, common stocks. As of 2016 there are over 130 Dividend ETFs, and that’s up from about 29 in 2011 and 45 in 2012. This has become a popular strategy, obviously, and they all seek to distinguish themselves from the pack. Continue reading...

What is an ETF? Definition

ETFs are very popular and useful investment vehicles that offer affordable diversification and professional portfolio management. An ETF is a basket of securities that is designed to ‘mimic’ the performance of an index, sector, or category of securities. For example, the ETF with ticker SPY is designed to track the performance of the S&P 500, and the company that creates the ETF (in this case Barclays iShares) builds the ETF simply by purchasing the 500 stocks in the S&P 500. Investors can purchase shares of the ETF as a means of gaining instant access to all 500 stocks in the S&P 500, thus tracking its performance. Continue reading...

What are Sector ETFs?

Sector ETFs hold a portfolio of stocks and other securities that represent a specific sector of the market. Sector ETFS are managed portfolios of securities which are representative of a specific industry or market sector. They might passively track a sector index or be actively seeking alpha over the sector benchmark. The word “sector” is a broad term for a grouping of companies in the market, but the word “industry” is sometimes used interchangeably. There are 10 sectors in the S&P 500: healthcare, financials, energy, consumer staples, consumer discretionary, utilities, materials, industrials, information technology, and telecommunications (telecom) services. Continue reading...

What are SPDRs?

SPDRs (Spiders) are index ETF shares that track the S&P 500, or could refer to other similar ETFs tracking other indices. The SPDR is the longest standing ETF (exchange traded fund), and has existed since 1993. Unlike index mutual funds that track the S&P, ETFs can trade intraday, can be sold short, and bought on margin. There are other SPDR ETFs that are spin-offs, and using “SPDRs” in the plural might refer to these as well. SPDRs are managed by State Street Global Advisors, and the S&P 500 SPDR is listed on the NYSE under the ticker symbol SPY. Continue reading...

What Does it Mean to Deleverage?

When a company “deleverages,” it means it is attempting to shrink the amount of debt on its books relative to its assets. In some cases the act of deleveraging requires a company to sell-off/liquidate key assets in order to pay down debt, which ultimately means downsizing as well. A company may choose to deleverage as a strategic tactic, but often times they are forced to as a result of economic circumstances. Continue reading...

What are Actively-Managed ETFs?

At their conception, ETFs only tracked indexes, but today there is also demand for actively-managed ETFs. ETFs tend to look a lot like passive index mutual funds, except that they can trade intra-day like stocks, while mutual funds only settle within 24 hours. In the last decade or so, there has been an increasing market for actively-managed ETFs as well. It is somewhat ironic that the popularity of actively-managed mutual funds has decreased while an abundance of actively-managed ETFs has appeared. The popularity of ETFs has grown enough for fund managers to attempt more and more things. Continue reading...

Can I Get Exposure to Virtual Currency Through ETFs, Mutual funds, or Stocks?

While there aren’t that many ways to use institutional-level, regulated vehicles to get exposure to bitcoin and other cryptocurrencies, there are some, and the market will likely expand. Money managers are finding ways to offer managed investments that offer exposure to cryptocurrencies, despite the hurdles presented by regulators and skepticism from large financial companies. On the over-the-counter market OTCQX, you can buy shares of the Bitcoin Investment Trust from Grayscale (Nasdaq: GBTC). This fund has seen massive gains recently but does come with a 2% fee. The Chicago Mercantile Exchange (CME) has stated that it would like to start trading cryptocurrency futures, but it may be a little time before this becomes a reality, due to significant red tape and guidance needed regarding cryptocurrencies. Continue reading...

How do I Buy an ETF?

ETFs are widely available through brokers and online trading services. ETFs can be purchased in the same way that you might purchase stocks. ETFs are priced continuously during the day, and reflect the underlying basket of stocks comprising this ETF. The fees and commissions investors pay for purchasing ETFs are exactly the same as those for stocks. The market for ETFs is highly liquid, with substantial trading volume every day. As such, ETFs are readily available and easy to acquire, but it is important to remember that they are not quite as simple as individual stocks. Continue reading...

What are the Expenses Associated with the Purchase of ETFs?

There may be fees and commissions involved in the purchase of ETFs, and ongoing expenses that reduce earnings over time. Purchasing an ETF will probably involve paying some fees or commissions to the service or broker through which you acquired the shares, but these days those commissions are fairly minimal. These fees will be the same or less than you might pay for using their services to acquire positions in other securities. ETFs are a relatively cheap way to gain an exposure to a particular sector of the market or to take a position that might otherwise be difficult and expensive to research, calculate, and engineer. Continue reading...

What are index futures?

Index futures are futures contracts written on an index in which a large position can be held with a relatively small margin requirement. Index futures can be used for hedging or speculation. A "good faith" initial margin deposit (also called a performance bond) of a fraction of the contract size is all that is required to hold a substantial position, with a notional value worth significantly more than the amount invested. Continue reading...

How do I get exposure to other currencies?

There are two main ways to get exposure to other currencies: you can buy them in the open market (FOREX), or you can buy instruments (such as ETFs) which reflect the currencies’ cross rates. For example, FXE reflects the rate of exchange between the US dollar and the Euro. It is trading in units of exchange rate times 100 (for example, if today, FXE is trading at $130, it means that the rate of exchange is $/Euro = $1.30). Continue reading...

What is a Prospectus?

A Prospectus is a legal document that must be filed with the Securities and Exchange Commission (SEC) when an investment is offered for sale to the public. The most commonly known forms of a prospectus are those that accompany a mutual fund, ETF, or an annuity when purchased by an investor. For an annuity and/or a mutual fund, a Prospectus contains details on the fund management. Continue reading...