Exchange Traded Fund(ETF) is one of the trade market investments that are traded on stock exchange. ETF investment strategy are more or less similar to mutual fund investments, the only difference is that in ETF, these funds can be bought or sold throughout the day on stock exchanges whereas mutual funds are bought or sold only at the end of day. ETF is the most profitable, important and easy investment option for beginners and individual investors. It is enabled with low expense ratio, low investment threshold, abundant liquidity and diversification.
New traders and investors can easily initiate and process their security funding in ETF. Around 2391 of these Investments are available in market with over $5.49 trillion of assets on 31 December, 2020. These investments are cost effective, available on minimum purchase levels and are transparent being published daily.
The diversification strategy is adapted by the investors by differentiating their portfolios into different assets like stock, real estate and bonds in order to get the maximum return from the risks managed investments.
The basic principles of diversification strategies are to hold domestic stocks, international stocks and bonds. The aggressive investors hold more stocks in their portfolios and the conservative investors have more bonds.
ETF investment strategy can be differentiated on the basis of criteria of investment, as mentioned below:
-Multi Asset ETFs: It comprises of distinguished assets ie. stocks, bonds, cash or real estate within an independent and sole Investment. The investment objective is achieved by the fund managers by analyzing the amount to be invested. Small capitalization stocks and emerging markets are included in an agressive multi asset ETF in order to achieve the goal of capital appreciation.On the other hand, blue chip stocks and investment grade bonds are included in a conservative ETF.
-Style and Factor ETF: These ETF investments depend on the economic conditions. Credit ratings and interest rate sensitivity classify the fixed income styles. The companies which have specific financial characteristics like upward price trend, are being focused in factor ETFs.
-Sector ETFs: The sector and industry ETFs are used by the investors to align their holdings with the sequences of business growth. Each sector of the Industrial economy is tracked by an index. Every sector is enabled with differentiated ETFs.
-International ETFs: These ETFs are used by global investors to capitalize on growth opportunities in different states and regions of the world. The FTSE(Financial Times Stock Exchange Group) Index is tracked in international ETFs except that of USA.
Socially Responsible ETFs regulate the environmental, social and governmental (ESG) issues by evaluating the role of companies in supporting these issues. There are 134 socially responsible ETFs in the markets of USA.
