Access Global Markets: Understanding ETFs

Since the first ETF, the SPDR S&P 500 ETF Trust (SPY), launched in 1993 assets in ETFs have grown exponentially. ETFs are similar to mutual funds in some respects, but the fact that they are exchange-traded offers a number of advantages for investors over mutual funds.

Advantages of ETFs for Investors

ETFs offer investors access to a diversified, professionally managed pool of stocks or bonds within the ETF’s objective. This may be tracking a popular market index such as the S&P 500 or the Russell 2000, or a more specialized benchmark tied to an industry or geographic region.

  • ETFs trade like stocks and can be bought and sold any time the stock market is open. This means that the trade price will be the share price at the time of the transaction, not at the end of the day as with a mutual fund.
  • Unlike mutual funds, ETFs can be traded on margin. Additionally, market orders such as stop orders, limit orders and others can be used to help ensure a purchase or sale at the investor’s target price. Call or put options can also be written on most ETFs.
  • The structure of ETFs generally results in lower expense ratios than comparable mutual funds.

ETFs were a true investment innovation when the first one was launched, and they remain innovative today. One key innovation is the liquidity they can provide to some asset classes. For example, they provide a high degree of liquidity and price discovery in a number of thinly traded fixed income and equity categories.

The structure of ETFs offers daily transparency as to their underlying holdings, so an investor always knows how the ETF is invested. Their structure also offers a greater level of tax-efficiency in many cases.

Industries With Attractive ETFs

In terms of AUM, the technology sector is the largest. As of the end of January, the top 83 ETFs in this sector had over $371 trillion in assets. The largest ETF in this space is the Invesco QQQ Trust (ticker QQQ). This ETF replicates the NASDAQ 100 index which includes the top 100 non-financial stocks on the NASDAQ. The index is roughly 50% technology stocks and is often used as a barometer for the tech sector.

The top 58 ETFs in the healthcare sector have in excess of $101 trillion in assets. The largest ETF is the Healthcare Select Sector SPDR fund (ticker XLV). The ETF holds most of the top names in this sector and is a good barometer for investors interested in investing in the healthcare sector.

The top 62 ETFs within the energy sector have almost $62 trillion in assets. The largest ETF in terms of assets is the Energy Select Sector SPDR Fund (ticker XLE). This ETF has rebounded nicely over the past several months after a tough 2020 for the entire sector.

Wedbush and ETF Managers Group (ETFMG)

Here at Wedbush we are excited to collaborate with ETFMG on two ETFs for investors.

The Wedbush ETFMG Global Cloud Technology ETF (IVES) is designed for access to the cloud infrastructure and cloud “enabler” companies, expected to drive the next 10 years of an estimated $1 trillion in cloud spending. The Fund gives global exposure to companies at the forefront of cloud technology.

The ticker IVES is for Dan Ives who is a Managing Director and Equity Analyst for Wedbush Securities covering the Technology sector. Dan has been very influential in the launch of this ETF; the fund tracks the Dan Ives Global Cloud Technology Prime Index.

The Wedbush ETFMG Video Game Tech ETF (GAMR) is the first ETF to target the industry and tracks the EEFund Video Game Tech Index. The video game industry is enjoyed by over 1 billion loyal users and influences many other tech industries such as virtual reality software and cloud-based services. This is a $127B global industry which is estimated to grow 49% by 2025.

Michael Pachter is the Managing Director of Equity Research here at Wedbush and is a recognized expert in the video game technology sector. Michael is one of the experts for the EFT and provides ongoing insights to the fund manager.

Summary 

ETFs offer a number of investment options for investors beyond what is available in traditional mutual funds. Talk with your Wedbush advisor to see how ETFs can enhance your portfolio.

Disclosure

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. The information in these materials may change at any time and without notice.

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