Exchange traded funds (
) have come a long way since January 1993--when the first ETF was
introduced to the market. The ETF world has grown exponentially
since then and currently there are more than 1400 U.S. listed
products with about $1.3 trillion in assets under management.
And there are more than 900 products in registration,
currently awaiting clearance from the SEC.
With their low-cost, efficiency, flexibility and transparency,
the ETFs have grown in popularity and number and types of
products has surged. ETFs opened doors to investing in the
new areas in the markets (asset class, style, currencies,
commodities or geography) that were earlier inaccessible to
regular investors. (
Three Biggest Mistakes of ETF Investing
ETFs are popular not only with the retail investors but also
with institutional investors like pension funds, foundations and
asset managers. Retail investors love the ETFs because among
others, they also do not impose any minimum investment limits,
unlike some of the index funds. Many investors both individual as
well as institutional use the ETFs for strategic asset
allocation, tactical trading strategies or risk management.
But there are certain ETF products that are pioneer in the
investing world since they changed the way we invest.
Thanksgiving week may be the right time to be thankful for such
SPDR S&P 500 (
It all started with a spider
. The ETF that started the ETF revolution still remains most
popular with the investors, with about $101 billion in AUM. The
ETF tracks the S&P 500 index and is a proxy for the broader
U.S. stock market.
For investors who do not believe in or do not want to spend a
lot of time in sector or stock picking and still want to remain
exposed to the U.S. equities, this ETF is a low-cost and
convenient choice. (
Three Excellent ETFs with more than 4% Yields
SPY has exposure to almost all important sectors with
Information Technology, Financials, Healthcare and Consumer
Discretionary being the top four sectors. In terms of
individual holdings, Apple Inc. occupies the top spot, followed
by Exxon Mobil, Microsoft, IBM and General Electric,
The fund is well diversified one, with top ten holdings
accounting for just about 20% of the portfolio. The expense
ratio is extremely low at 9 basis points, but this is not the
cheapest large-cap blend ETF choice available to the investors
now. It pays out a dividend yield of 2.09% currently.
SPY has excellent liquidity and trades in high volumes, and
thus it is an ideal choice for large trades but retail investors
have two other slightly cheaper alternatives available in iShares
Core S&P 500 ETF (
and Vanguard S&P 500 ETF (
). IVV and VOO charge seven and five basis points respectively
for annual expenses.
SPDR Gold Trust
Gold has attracted investors' attention for a very long time,
not only due to its status as store of value and inflation-hedge,
but also due to excellent diversification that it provides to the
Many investors avoided investing in gold earlier just due to
high trading costs and inconvenience associated with buying and
storing the bullion. GLD, launched in 2004 provided an
innovative, cost-efficient and secure way to invest in the metal
to such investors.
Thus it's no surprise that GLD is the second most popular ETF
with about $75 billion in assets under management. (
Shine and Protect your portfolio with Gold
It seeks to replicate the performance of the gold bullion and
is backed by physical holding of gold bullion in London vaults.
It charges 40 basis points for annual expenses.
While GLD is the largest, most liquid and widely traded gold
ETF, iShares Gold Trust (
) presents a much cheaper option to GLD with its expense ratio at
0.25% per year. GLD trades in higher volumes and has slightly
lower bid-ask spreads, compared with IAU, which may result in
some benefit for very large trades. But for most retail
investors, IAU is a more cost-effective option.
PIMCO Total Return ETF (
BOND is the ETF version of PIMCO's flagship blockbuster mutual
fund--the PIMCO Total Return Institutional Fund.
BOND is a very popular product since it provides the
opportunity of getting the portfolio management expertise of Bill
Gross, one of the most respected investment managers in the
world. The ETF has become the
exchange-traded-product launch since GLD's launch in
The ETF currently has $3.7 billion in AUM and charges an
expense ratio of 55 basis points per annum. Though the ETF
does not use swaps or other similar derivative instruments which
are in the mutual fund versions of the product (due to SEC
rules), it has been outperforming its mutual fund counterpart
since inception in March this year.
The ETF has returned 10.1% since its inception and it pays out
a decent yield of 2.5%. The portfolio currently holds 873
securities with an effective maturity of 7.6 years and effective
duration of 4.8 years.
According to some industry experts actively managed bond ETFs
are likely to become popular in future and further with
time-proven success of PIMCO Total Return strategy, we expect
this ETF to be an outperformer in the fixed income world.
Want the latest recommendations from Zacks Investment
Research? Today, you can download
7 Best Stocks for the Next 30 Days
Click to get this free report >>
PIMCO-TOT RETRN (BOND): ETF Research Reports
SPDR-GOLD TRUST (GLD): ETF Research Reports
SPDR-SP 500 TR (SPY): ETF Research Reports
To read this article on Zacks.com click here.
Want the latest recommendations from Zacks
Investment Research? Today, you can download 7 Best Stocks for
the Next 30 Days. Click to get this free report