ETFs Capture Market Attention & Investment
The momentum of exchange-traded funds, which attracted new investor money at a rapid clip throughout 2010, is expected to continue unabated in 2011.
Those ETFs investing in the appreciating commodities of gold and silver have been especially popular, but stocks and bonds are also attracting new money. The numbers don't lie:
-- More than
-- While still dwarfed by the
-- There are now about 1,000 different ETF products, according to the
"Performance of ETFs investing in precious metals was outstanding in 2010, and, although emerging markets ETFs started slowly, they turned in an excellent performance for the year," said
The SPDR Gold Trust ETF (GLD) has appreciated about 25 percent in value each of the last two years, while
Besides diversifying an investor portfolio, these low-cost investments that hold baskets of stocks, bonds or commodities can be traded throughout the day like stocks. That differs from traditional mutual funds, whose prices are set once at the end of each day.
An ETF is tax-efficient, so you won't get stuck with a year-end capital gains tax bill as you might with a mutual fund in which other investors sold their shares.
"One of the biggest trends is greater education about ETFs, such as our own firm's educational campaign," said
"Buying an ETF is more complicated than a mutual fund because there are bids and asks throughout the trading day, and market forces can affect price," explained
What's hot for 2011?
Investors are especially interested in short-term fixed-income ETFs, said Rochte, with
Another trend in this low-interest-rate environment is the search for current dividend income, he added, with assets of
"Just understand that an ETF is not a shield from volatility and that just because it is based on an index does not mean it has no risk," cautioned Rochte. "Understand the index the ETF is based upon, what stocks that index includes and expenses involved, or you'll be making a big mistake."
In setting a 2011 ETF strategy for an individual, DeLegge would first make sure major asset classes are represented through ETFs such as Schwab U.S. Broad Market (SCHB) and the previously mentioned
A commodities choice for those concerned about inflation or a weakening U.S. dollar would be ETFS Physical Precious Metal Basket Shares (GLTR), which owns a diversified portfolio of gold, silver, palladium and platinum. In real estate, he recommends Vanguard REIT Index ETF (VNQ) and SPDR Dow Jones International Real Estate ETF (RWX).
Turning to bonds, DeLegge recommends
"For every investor, a model portfolio should include a mix of stocks and bonds, with a bit of commodity exposure between 4 and 10 percent that could be satisfied with a gold ETF," said Justice. "The reason that you don't see ETFs in 401(k) retirement accounts is that you'd have to pay a trading fee every time you invest, such as through payroll deduction."
Justice believes the easiest way to get exposure to all stocks domestically and internationally is through an ETF such as Vanguard Total World Stock Index ETF (
For exposure to developed foreign markets, Justice likes iShares MSCI EAFE Index ETF (EFA) and iShares MSCI EAFE Small Cap Index ETF (SCZ). His gold choices would include the previously mentioned SPDR Gold Trust ETF.
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