Exchange Traded Fund Investments
Profit from the World’s Hottest Markets with Dr. Mark Skousen’s Exchange Traded Fund Recommendations
An Investment U White Paper Report
By Angela McKee and the Investment U Research Team
ETFs are hot. Consider this…
Exchange Traded Fund investments represent the fastest growing sector of the mutual fund industry with money flooding into the market.Assets have skyrocketed from $151 billion at the end of 2003 to currently $322 billion, with no sign that momentum will be slowing any time soon.
The number of Exchange Traded Funds has blossomed from 30 only six years ago to 237 today (but feel free to check that figure the number may have gotten even higher as of this writing).As reported to Investor’s Business Daily by a top advisor, “Of the new money coming into our firm, about two-thirds of the equity investments are going into ETFs.”In this Investment U research report, we’ll take an in-depth look at Exchange Traded Funds and answer the following questions:
- How do they work?
- Why are they so hot?
- And most importantly, how can investors profit?
We’ll also share Dr. Mark Skousen’s top three recommendations, essentially revealing how you can make money from this type of investment in the world’s most promising markets.
But First, a Little Background
Exchange Traded Funds are best understood as a fusion of mutual funds and stocks offering the best of both worlds. Basically, ETFs are baskets woven of related stocks or bonds – bundled together and sold as one share. They are designed to mimic the performance of a stock or bond index.
For instance, in one share you can buy a batch of U.S. government 20-year + bonds, the whole country of Malaysia, the biotech industry, a collection of the most important oil services stocks, or the 200 most important small cap companies. The list seems endless and continues to grow. Why so popular?
Speculating on a collection of stocks is much safer (and potentially much more profitable) than buying individual stocks. As countless examples throughout history have proven, even though the outlook of a particular stock seems impressive, a number of unknown factors can suddenly interfere and crush an otherwise promising stock.
So it is the unique combination of mutual fund and stock characteristics that make Exchange Traded Funds so popular.
Numerous Features Attract Speculators to Exchange Traded Fund Investments:
- Flexibility. As opposed to a typical mutual fund, which is priced only once each day, ETFs can be traded throughout the day on the New York Stock Exchange (NYSE) or the American (AMEX), similar in this way to a stock. This provides you with greater flexibility, allowing for options, margin, limit orders, and the ability to sell short.
- Liquidity. When ETFs were first introduced in 1993, there was only one, and volume was under 100,000 shares a day. In today’s market, tens of millions of shares are traded each day on the major stock exchanges.
- Diversification. As stated earlier, ETFs permit you to purchase a basket of related stocks and bonds in just one share, thus allowing you to diversify your portfolio easily and reduce your risk.
- Low cost and dependability. Quite simply, ETFs are index funds so they usually cost less to run than standard mutual funds. Investing in ETFs allows you to create your own well-diversified portfolio without sales loads, redemption fees and other common restrictions of mutual funds. Plus, as index funds, you know what you are getting and can choose which sector you want to invest in.
- Choice. The ETF investment universe is rapidly accelerating. There are now more than 200 ETFs covering a vast array of segments. New Exchange-Traded Funds are constantly being introduced to the market, opening unexplored doors of opportunity to interested investors. Some of the major categories are: Banking, Bonds (U.S.), Growth, Small Cap, Mid Cap, Large Cap, Consumer, Financial, Foreign Markets, Biotech and Healthcare, Energy and Gold, Real Estate, Technology, and more.
- Global Opportunities. If you want to invest in a certain country but don’t want the risk of owning a single stock, then Exchange-Traded Funds deserve a close look. They are not limited to American soil or U.S. companies. In fact, there are many ETFs that track foreign markets.
- Tax Efficiency. ETFs are currently all index funds, which usually have lower turnover than actively managed funds. This translates to lower capital gains tax. In addition, since ETF investors trade shares on an exchange and not with the fund, ETF managers don’t have to sell securities to pay off redeeming shareholders.
A Side-by-Side Glance – The Best of Both Investment Worlds
| ETFs vs. Mutual Funds & Individual Stocks | Exchange Traded Funds | Individual Stocks | Mutual Fund |
| Continuous trading and pricing throughout the day? | Yes | Yes | No |
| May be bought on margin? | Yes | Yes | No |
| Can buy/sell options? | Yes | Yes | No |
| Can be purchased through a traditional or online broker? | Yes | Yes | Yes |
| Can use in an IRA, 401(k), or another retirement plan? | Yes* | Yes | Yes |
| Traded on what exchanges? | Amex, NASDAQ, NYSE | Amex, NASDAQ, NYSE | N/A |
| Control over capital gains? | Yes | Yes | No |
| Management Fees | Historically Low | None | Historically High – Industry Average 1.44% |
(*) For employer sponsored retirement plans, stocks of other companies and ETFs may not be available as an investment option. Self-directed retirement plans may offer a broader menu of investment choices which may include stocks and Exchange Traded Funds. (SOURCE – www.etfguide.com & www.xtf.com)
With So Many Exchange Traded Funds To Choose from, Which Are Your Best Bets?
Former Investment U Chairman and Columbia University economist Dr. Mark Skousen believes two Exchange Traded Fund investments stand to make you more money this year than the others. Let’s take a quick look:
- iShares MSCI Emerging Markets (AMEX: EEM). The Morgan Stanley Emerging Markets Index (EEM) includes such giants as China Mobile, Lukoil and Samsung Electronics. Undoubtedly, emerging markets have received their fair share of attention lately. While the U.S. market is much more expensive, selling at an average 16 times earnings, emerging markets, even after a three-year bull-run, are still selling for only 12 times earnings. As always, there’s greater volatility and risk associated with emerging markets, but we are still forecasting these foreign markets as bargains.
- iShares FTSE/Xinhua China 25 Index Fund (NYSE: FXI). You may ask, “Why China?” But we feel the more appropriate question is, “Why not?” Yes, China has its problems, but presently, it is experiencing an unprecedented business and building boom – making it an ideal investment. There are many factors in China’s favor, such as a 9% growth rate, a strong and stable currency, and enormous trade surpluses from abroad. With more than 50 China-linked American Depository Receipts (ADRs) traded on the New York Stock Exchange and the NASDAQ, there is plenty of opportunity to profit from this explosion. But there’s no need to choose just one. Invest in all of them with FXI.
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A Quick Note of Caution While trading Exchange Traded Funds has many benefits, even a great product such as this has disadvantages. Fortunately, the downside is manageable. So what is it? To start, investors need to display some degree of restraint. The flexibility of trading ETFs throughout the day, while one of their most attractive stock-like features, can also be a trap of sorts, if speculators are enticed to do just that. You see, ETFs must be purchased through a broker, and this extreme trading will lead to excessive commission payouts and inevitable losses. So it’s best to proceed with a bit of caution and discretion. |
The appeal of Exchange Traded Funds spans across the investment world – from large institutions to retail investors – representing an effective investment capable of tracking a market index.
Since ETFs cover just about every conceivable sector and are inexpensive, liquid and dependable Exchange Traded Funds are nothing short of the perfect instrument for any investor interested in asset allocation.
And with our picks of EEM, FXI and FEU you will benefit from the best exposure to today’s hottest markets.
Oxford Club Investment Director Alex Green has recommended several ETFs to members. And they’ve been instrumental to the Club’s overall success. In the past five years, as recently confirmed by The Hulbert Financial Digest, the Club’s portfolios have generated an 85% return. The Wilshire 5000 Total Market Index gained 24% over the same period. Here’s how to get access to “the club you can’t get into.”
Good investing,
Angela McKee and the Investment U Research Team
View the complete Exchange Traded Fund Investments white paper in .PDF format
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