The holder of an MBA from Fairleigh Dickinson University, Ken Mathieson is the managing director of Laidlaw Asset Management in New York, New York. At the firm, Ken Mathieson uses an asset allocation process to optimize clients’ return on investment while leveraging low-cost exchange-traded funds (ETFs) to provide diversification.
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ETFs are marketable securities primarily created to track the performance of an underlying index or asset class. ETFs can comprise a mix of investments such as stocks, bonds, commodities, currencies, and even derivatives. Here are some examples of ETFs:
- US market index ETFs. As the name says, these track market indexes. For example, the S&P 500 ETF tracks the S&P 500. These ETFs contain a broad mix of stocks traded in the indexes they track. They are, therefore, a good channel of diversification.
- Sector ETFs. These track a sector, such as pharmaceuticals. Investors who buy these ETFs gain exposure to certain sectors as a whole without having to buy individual stocks.
- Foreign market ETFs. These track the performance of foreign indexes. The EWJ tracks Japan’s Nikkei Index, and the EWG tracks the MSCI Germany Index.
- Foreign currency ETFs. These contain a broad mix of foreign currencies and give investors exposure to the currencies, which allows people to track currencies the same way they track indexes.
- Commodities ETFs. These target commodity markets such as gold and oil, enabling investors to track these markets.
Many more types of ETFs exist, including bond ETFs, style ETFs, derivative ETFs, and leveraged ETFs. Because ETFs are marketable securities, they are traded on exchanges, and their prices fluctuate as they are bought and sold on the market.
