The ETF toolset allows for tactical application of specific ETFs based on market expectations. Products, parameters and figures provided are primarily intended as mental note and no claim is made to the accuracy of data.
Using Exchange Traded Funds
As cycles and market oppertunities emerge, an ETF can be a great instrument to trade specific regions of the market. The Exchange Traded Fund (ETF) is an open-ended fund that tracks the performance of an index, commodity or any basket of assets and which trades like a stock. In this sense, ETFs can be used for oppertunity hunting, quick diversification and for hedging purposes. Be mindfull though, that not all ETFs are created even and specific types may suite a specific purposes. If you are relatively new to ETFs, or you want to refresh your knowledge, please follow one of these two links. As goes with any investment, the prospectus always needs close examination before any capital is commited.My Favorite ETF's
In the table below, an overview is given of my preferred ETFs, categorised by market and oppertunity (usage). Before making investments, always check the most actual conditions of the fund.
Underlying Asset
|
Exposure
|
Usage
|
Name
|
Ticker Code
|
Notes
|
S&P 500
|
1x long
|
Longer bi-directional moves
|
SPDR S&P 500
|
SPY
|
Higher expense ratio (0.09), solid tracking spread (0.01%).
|
1x long
|
Shorter bi-directional moves
|
Vanguard S&P 500
|
VOO
|
Lower expense ratio (0.05), slightly higher spread (~0.02%)
|
|
1x long
|
Longer-term bull market
|
Guggenheim S&P 500 Pure Growth
|
RPG
|
More volatile tracking of growth stocks at a higher expense ratio
(0.35%)
|
|
2x short
|
Short-term bear market
|
ProShares Ultrashort S&P 500
|
SDS
|
Tight geared tracking at a moderate expense ratio (0.90%)
|
|
2x long
|
Short-term bull market
|
ProShares Ultra S&P 500
|
SSO
|
Geared tracking in a very liquid market at a moderate expense ratio
(0.90%)
|
|
3x long
|
Short-term bull market
|
Direxion Daily S&P 500
|
SPXL
|
Very tight (levered) tracking at an medium expense ratio (0.99%)
|
|
Total US Market Exposure
|
1x long
|
Long-term bi-directional moves
|
Total Stock Market Speeder
|
VTI
|
Very low expense ratio (0.05) and an excellent spread (0.01%).
Tracks Dow Jones U.S. Total Stock Market Index very accurately on a
longer term base.
|
US Large Caps (broad market)
|
1x long
|
Medium to long-term bull market
|
Vanguard Mega Cap
|
MGC
|
Reasonable expense ratio (0.12%) at a very decent spread(avg) (0.04)
|
Dow-Jones - US Large Caps (Dow 30)
|
2x short
|
Short-term bearish moves
|
ProShares UltraShort Dow 30
|
DXD
|
High expense ratio (0.90%) and very tight tracking on daily base.
Mind acute effects of compounding at high volatility resulting in
quick decay.
|
Nasdaq-100
|
1x long
|
Medium-term bi-directional moves
|
Total Return Nasdaq-100
|
QQQ
|
Reasonable expense ratio (0.20%) with a tight spread(avg) (0.01%).
This fund is only non-financial and largely overweight Apple.
|
1x long
|
Speculative tech growth.
|
First Trust NASDAQ-100 Equal Weighted
|
QQQEW
|
Quite high expense ratio (0.60%) with acceptable spread(avg)
(0.08%). This fund equally weights Nasdaq-100 stocks and tilts to
tech growth-stocks.
|
|
Volatility (VIX)
|
1x long
|
Short-term bull moves (bear markets)
|
iPath S&P 500 VIX Short-Term Futures ETN
|
VXX of VXZ
|
VERY DANGEROUS INSTRUMENTS, UNLESS SHORT. RELENTLESS COMPOUNDING
LEADS TO MASSIVE DECAY IN BEARISH ENVIRONMENT. NEVER TRADE LONGER THAN 1 MONTH
|
1x short
|
Mid-term bear moves (bull markets)
|
VelocityShares Daily Inverse VIX Short Term ETN
|
XIV
|
Very high expense ratio (1.35%) and reasonable spread (0.03%) for
short term. Use this asset at best in a mid-term downward market.
BEWARE RISKS
|
|
WTI Crude Oil
|
1x long
|
medium term bi-directional moves
|
United States Oil
|
USO
|
Relatively low expense ratio (0.70%), reasonable tracking
methodology. BEWARE VOLATILITY AND FUTURES CURVES
|
Brent Crude Oil
|
1x long
|
Medium term bi-directional moves
|
United States Brent Oil
|
BNO
|
Higher expense ratio (0.92%) at a reasonable spread(60) (0.09%)
|
GOLD
|
1x long (london fix)
|
Commodities (precious metals)
|
SPDR Gold
|
GLD
|
Decent expense ratio (0.40%) for a tight spread (60) (0.01%).
Largest and most liquid gold tracker.
|
Juniors Miners
|
1x long
|
Medium-/long-term bull markets
|
Market Vectors Junior Gold Miners
|
GDXJ
|
High expense ratio (0.55%) and reasonable spread (0.12%) for a high
profit potential in the (risky) Juniors gold miners complex.
|
1x long
|
Medium Term bull markets
|
Market Vectors Gold Miners
|
GDX
|
High expense ratio (0.52%) with reasonable spread (0.03%)
short-term, but underperforms to HUI long-term.
|
|
Large-Cap Miners
|
3x short (HUI)
|
Short-term bear markets
|
Direxion Daily Gold Miners Bear 3X
|
DUST
|
High expense ratio (1.01%) for an agressive bet against gold miners
on short term.
|
Silver
|
2x long (london fix)
|
Short-term bull markets
|
ProShares Ultra Silver
|
AGQ
|
Very high expense ratio (1.98%) and tight performance even when
holding longer term. Most effective as short-term trading
instrument.
|
2x short
|
Short-term bear markets
|
ProShares UltraShort Silver
|
ZSL
|
Very high expense ratio (2.02%)
but tight leveraged short-term tracking.
|
|
Financials (US)
|
1x long (SP500 financials)
|
Long-term bi-directional moves
|
Financial Select SPDR
|
XLF
|
Reasonable expense ratio (0.18%) and tight tracking over the long
haul.
|
Utilities (US) {nutsbedrijven}
|
1x long (MSCI utiltities)
|
Medium-/long-term bi-directional moves
|
Vanguard Utilities
|
VPU
|
Reasonable expense ratio (0.22%) and solid tracking over the long
term.
|
Consumer Staples (US)
{consumptie + huishoudelijk}
|
1x long
|
Medium-/long-term bi-directional moves
|
Vanguard Consumer Staples
|
VDC
|
Relatively low expense ratio (0.14%) and good tracking over the long
term
|
Health Care (US)
|
1x long (MSCI Health care)
|
Medium-/long-term bi-directional moves
|
Vanguard Health Care
|
VHT
|
Relatively low expense ratio (0.14%) and good tracking over the long
term
|
Biotechnology (US - Nasdaq)
|
2x long
|
Short-/medium-term bull markets
|
ProShares Ultra NASDAQ Biotech
|
BIB
|
Relatively high expense ratio (0.95%) and trading costs due to its
spreads. Good choice for bullish speculations.
|
1x long
|
Medium-/long-term bi-directional moves
|
Guggenheim S&P Equal Weight Technology
|
RYT
|
Acceptable expense ratio (0.40%) for a reasonable tracking and equal
weighting of S&P 500 tech companies.
|
|
Consumer Discretionary (US) {duurzame
consumptiegoederen}
|
1x long
|
Short-/medium-term bi-directional moves
|
Consumer Discretionary Select SPDR
|
XLY
|
Attractive expense ratio (0.18%) but lacks tracking over a longer
term. Liquidity and reasonable spread makes attractive trading tool
for general market moves.
|
Energy (US)
|
1x long (MSCI Energy)
|
Vanguard Energy
|
VDE
|
Low expense ratio (0.14%), broad exposure and solid tracking
spread(365) (0.07%). Second in market to a more liquid, but more S&P
500 inclined XLE.
|
|
Uranium
|
1x long
|
Medium-/long-term bi-directional moves
|
Market Vectors Uranium + Nuclear Energy
|
NLR
|
Reasonably high expense ratio (0.60%) for which it outperformed its
peers. Reasonably liquid and relatively broad diversification.
|
Alternative Energy (Global)
|
1x long
|
medium-/long-term bi-directional moves
|
Market Vectors Global Alternative Energy
|
GEX
|
Reasonably high expense ratio (0.62%) and outperformance in bull-markets. Acceptable liquidity, but risks a high(er) spread.
|
Platinum
|
1x long
|
Medium-term bi-directional moves
|
ETFS Physical Platinum
|
PPLT
|
Relatively high expense ratio (o.60%), though lowest in segment.
Acceptable tracking spread(12 Mo) (median -0.57%) and good
liquidity.
|
Palladium
|
1x long
|
Medium-/long-term bi-directional moves
|
ETFS Physical Palladium
|
PALL
|
Only focussed physical palladium tracker, at
relatively high expense ratio (0.60). Acceptable tracking spread
(median -0.68%) and good liquidity.
|
The information is largely sourced from ETF.com and was last updated on Februari 2014.
Short-term
|
Medium Term
|
Long-term
|
< 3 weeks
|
< 6 months
|
> 6 months
|
Some ETF Essentials
1) Levered Funds generally increase spreads (underperform) in volatile markets, but may outperform when volatility is low.2) Commodity ETFs (based on futures and/or derrivatives) may underperform when in contango (futures-curve edges up) and outperform when in backwardation (futures-curve edging down). To check futures curves, you can check the latest contango report on ETF.com or parse data manually from the CME Group.
3) Synthetic (replicated) ETFs are constructed with (complex) derrivative structures, often opaque to the retail investor. Be mindfull of related risks and possible deviations in performance and spreads that result. You might want to prefer physical replicated ETFs.
4) ALWAYS be mindfull of volatility. Higher volatility increases likelyhood of underperformance.
5) Rebalancing / Compounding can be a b*tch! If you are using ETF's for the long run, make comparison charts yourself to get a sense of tracking variability (check this chart to see how a long VIX position using the VXX could explode in your face - even if you are right).
6) There is a difference between ETFs and ETNs (Exchange Traded Notes). In general, ETNs deliver better tracking performance, but bring substantial more (credit) risk. Check this article to learn more.
Using ETF's
When you are interested in wide exposure for an accessible price, then an ETF is an excellent choice. Before you make any commitments to sectors or markets, make sure you have selected the best value-for-money ETF that meets your strategy. You may can compare any ETF on www.etf.com and you may find additional information on www.morningstar.com. Before you make your first ETF investment, be sure to read these tips first.Prosperous Investing,
Steven
