Exchange Traded Funds (ETFs)

Exchange traded funds (ETFs), the bricks of investing, help the likes of Ray Dalio build structurally sound investment portfolios which outperform the indexes or achieve alpha returns in all market conditions.

So then what are Exchange Traded Funds (ETFs)?

Exchange traded funds (ETFs)

ETFs are a basket of securities traded on the exchange, like stocks.

ETFs can be dedicated to stocks, commodities, bonds and emerging markets.

The Vanguard FTSE Emerging Markets ETF, under the ticker symbol VWO is a fund invested in a range of emerging market stocks weighted towards China, Brazil, Taiwan, and South Africa.

Emerging Markets ETF (VWO) goal is to track the return on the FTSE Emerging Markets All Cap China A Inclusion Index.

Emerging Markets Exchange Traded Funds (ETFs) has high growth, high-risk potential

But, if the long term bet on globalization is unwinding VWO could underperform. If on the other hand, we are seeing a temporary blip, then VWO could be a buy opportunity as Emerging Market resume their take-off.

How do investors manage the risk of Emerging Markets Exchange Traded Funds (ETFs) in a world of growing protectionism and the populist’s firebrand of economic nationalism?

Search for an ETF inversely correlated to the performance of Emerging Markets ETF. SPDR S&P 500 EFT Trust is American as apple pie.

The SPY ETF tracks US large and mid-cap stocks selected by the S&P committee. SPY tracks the S&P 500, large and well know stocks throughout the US. SPDR S&P 500 EFT Trust gives investors maximum exposure to US markets. 

If US hegemony fightback is a long term trend then SPY ETF could be a good bet.

A third of Ray Dalio’s Bridgewater portfolios are invested in Emerging Markets Exchange traded funds (ETFs) and the SPY ETF.

Other Exchange Traded Funds (ETFs) that track emerging markets come under the ticker symbol EEM and IEMG.

Tracking the performance of large and mid-capitalization of emerging market equities. IEMG also tracks small-cap stocks.

What about safe-haven gold exposure Exchange Traded Funds (ETFs)?

The SPDR Gold Trust, ticker symbol GLD. This is the largest physically-backed gold exchange rate fund in the world, which provides investors with a cheap easy secure way of getting exposure to gold. This fund owns physically held gold.

There is also an iShares MSCI Brazil ETF, which tracks overall large mid-cap companies in Brazil market.

Over the last year, Ray Dalio has made 39.09% of profits from Brazil’s ETF.

What about fixed income (bond) Exchange Traded Funds (ETFs)?

LQD is an investment-grade corporate bond ETF. HYG is the high yield corporate bond ETF. TLT is a 20 plus year treasury bond ETF

What are the advantages of using Exchange Traded Funds (ETFs)?

Risk management through diversification, access to many stocks across various industries and regions and low expense ratios  trading ETFs are the main advantages of trading ETFs.

The disadvantages of using Exchange Traded Funds (ETFs) is that single industry focus ETFs limit diversification and a lack of liquidity can also hinder transactions

ETTs could be a victim of their success. ETFs are ‘overinflated’ and could spark the next market crash, trader says.

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