Exchange Traded Funds (ETFs)
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Tom Ventresca MarketEdge.com |
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Gain broad-based market exposure without taking a second mortgage out on your house.
ETFs are open-ended, registered investment companies organized under the Investment Company Act of 1940 that have been granted certain exemptive relief from the SEC to allow secondary market trading 
on the AMEX exchange. ETFs represent ownership in over 60 different index funds compiled by one of the following index providers: Standard & Poor's, Dow Jones & Company, Frank Russell Company, Cohen & Steers Capital Management, Inc., the Nasdaq Stock Market, Inc., Goldman, Sachs & Co., Morgan Stanley Capital International Inc., and Lehman Brothers. As of December 31, 2002, ETFs had assets of over $102 billion, up from $84.6 billion in 2001 and only $1.1 billion in 1995. ETFs are easy to trade, highly liquid, more tax-efficient than traditional mutual funds and can be bought with a minimal investment. Trading ETFs can be a successful strategy in both bull and bear markets. They are a great way to gain low cost exposure to specific sectors, industry groups or global markets.
What Are ETFs And How Do They Work
ETFs are trusts, which contain a basket of stocks that mirror the performance of recognized stock and bond indexes. As of 12/31/02 there are more than 113 ETFs, which are traded in the U.S. Unlike mutual funds, ETFs can be bought and sold at any point during the trading day providing liquidity not found in open-end mutual funds. The investor can also gain broad market exposure without costing an arm and a leg. Arguably, ETFs have become the fastest growing investment product on the financial landscape. Barclays Global Investors (BGI) the world’s leading sponsor of ETFs has 78 on the market. Other sponsors include Vanguard, Bank of New York and State Street. All ETFs are listed on the AMEX exchange.
Advantages Of Exchange Traded Funds
- Tax efficiency: Unlike mutual funds, there are no capital gain distributions with ETFs. Your gain or loss is realized only when you close an open position.
- Diversification: Each ETF typically has 20 - 150 stocks weighted by market capitalization.
- Transparency: Unlike mutual funds, ETFs are not actively managed. The stocks in the portfolio remain in the trust until they are replaced in the corresponding index.
- Scheduled dividends: ETFs that included stocks that pay dividends distribute those dividends on a quarterly basis.
- Intra-day buying and selling flexibility:
- Inexpensive transaction fees.
- ETFs are marginable and can be shorted on a down tick:
- Low management fees: Average expense ratio of a mutual fund might be as high as 1.5% versus .25% for an ETF.
- Can be traded using stop and limit orders.
Types Of Exchange Traded Funds, Sponsors And Specifics
| Symbols: | Fund Type, Sponsor and Particulars |
| Ends in H | Holders-Bank of New York's Selected Industry Groups. (Must be purchased in round lots-100 Shares). |
| Starts with E | iShares-Barclay's International Indexes |
| Starts with I | iShares-Barclay's Broad Based Indexes |
| Starts with V | Vipers-Vanguard's Broad Based Indexes |
| Starts with X | Spiders-State Street's Sector Based Indexes |
To view the particulars of a fund, click here: http://www.amex.com. Enter the symbol in the box located in the upper left-hand corner and then click on 'Quotes'. To view the funds top ten holdings and additional information, click on the 'Holdings Button' located on the right side of the quote bar. For a complete listing of the current funds, click on the ETFs button located on the left side bar on the AMEX home page. Under the Product Lookup drop down, select 'List All Products'.
Computrade System's Market Edge web site (www.marketedge.com) has a module called Stock Watch. It contains three lists of ETFs, which include all of the equity-based funds. The lists are grouped as Sector, Domestic or International ETFs. By combining the power of the Market Edge computer generated 'Opinions' (Long Neutral and Avoid) with the diversification offered by ETFs, a potent investment program can be structured.
Tom Ventresca has been Computrade’s Director of Research since its inception in 1991. Prior to founding Computrade, Tom spent 12 years in the securities industry holding several positions including broker, sales manager, bond trader and market technician.
1947: Born-Pittsburgh, Pa.
1965-1969: Pennsylvania State University, BA degree.
1970-1978: Builder
1978-1990: Securities industry. Firms included First Southeastern, E.G. Francis, First Southeastern, Smith Barney and Oppenheimer.
1990-Present: Computrade Systems, Inc. Co-founder and Director of Research. Computrade is the developer of Market Edge, a comprehensive, computerized research web site, which is accessed by individuals, brokers and institutions throughout the world. As Director of Research, Tom writes Market Edge’s ‘Market Letter’ and ‘On The Edge’ plus the Dr. Market Edge series. Both the Market Letter and On The Edge provide in-depth market analysis based on three market timing models that he developed. Tom also has recently finished a new book, ‘Trade Like A Pro’ which is a systematic, disciplined approach to the stock market. Based on technical analysis, this book addresses five topics that he believes are critical to having success in the market. These subjects include market timing, stock selection, timing entry and exit points, protecting positions and money management.