Exchange traded funds (ETFs) are swiftly moving into "household
name" territory, but not everyone believes the hype. For those
skeptics, the remedy is often just a
ETFs provide access to a segment of the market and helps in
constructing and managing a diversified portfolio,
Roger Nusbaum for The Street summarizes
. If you want to invest in a specific area, you'll need need a fund
or some stocks - let's make the argument for funds. [
ETFs: A Portfolio Diversifier.
A number of factors go into how an ETF performs and represents
its market segment.
Some ETFs may not perfectly match a segment of the market since
there may be disproportionate weightings of individual stocks
within a fund. For example,
PowerShares NASDAQ-100 (
has a 20% weighting in Apple (NASDAQ:
). Whether that's bad or good depends on you: What's your risk
tolerance? Would you rather have equal weight? Or do you already
own Apple stock?
But purchasing an individual stock comes with the risk of
picking a dud that underperforms the entire segment of the market.
You, the Retail Investor, Are Using More ETFs.
Some ETFs also have heavy weightings in certain sectors, which
need to be considered in the big picture of your portfolio.
Market Vectors Russia (NYSEArca: USO)
. Many single-country emerging market ETFs are heavily skewed
toward natural resources; if you're already holding commodities,
you might have to do some adjusting.
Other ETFs have unique strategies that can have an impact on
returns. The most recent example is when commodity ETFs were
criticized for losing money as a result of contango. It's a
reminder to investors that they should never purchase what they
don't fully understand. We have a number of
on our site, and the ETF providers are always available to answer
further questions, as well.
To dig down into nearly any ETF, visit the
, where you can find a prospectus, fact sheet, customizable
charting and much more.
For more information on ETFs, visit our
ETF 101 category
Max Chen contributed to this article.