The exchange traded fund (
) universe offers a breathtaking array of options to choose from.
The latest addition to this universe is the pure-play ETF, which
gives investors very focused exposure to a sector. With that
focused exposure, though, comes more risk.
ETFs were initially passive vehicles used to mirror the
performance of broad stock market indexes, especially those of
says Larry D. Spears of Money Morning
. Over time, however, the domain of ETFs has expanded to include
actively managed funds.
A derivative of the actively managed ETF is the The Teucrium
Corn Fund, which will offer investors a "well-diversified" corn
asset pool consisting of just three futures contracts. The idea is
that a blend of three different futures will lower the volatility
of trading corn and eliminate futures margin requirements. [
Financial ETFs: Future Opportunity?
However, according to Spears, that provides little advantage to
traders who actually
to make corn investments. Thus, he thinks that the ETF will end up
as another way for speculators to bet on the corn market.
Shah Gialini of Money Morning doesn't think that that would be a
particularly bad thing. He says, "The level of diversification
within the ETF itself is not nearly as important as the added
diversification an investor can get by including focused ETFs in
his or her portfolio." [
Leveraged ETFs Take Center Stage.
Depending on your view, pure-play ETFs may or may not be an
attractive vehicle. In and of themselves, they may not provide
enough diversification. But, if you view them as a way to diversify
your portfolio in ways normal stocks and bonds wouldn't allow you
to, then the pure-play ETFs may very well be a welcome innovation.
Commodity ETFs Take It on the Chin.
Sumin Kim contributed to this article.