Exchange Traded Funds

All right I want to talk about exchange traded funds or ETFs as they’re commonly known as. Now you’ve heard us talk about these on the show. I know many of you out there have watched the shows for years and we bring these up as when we’re talking about different investment options. I want to take a little turn on this, but first I want to establish the bases here. For those of you that don’t know what it is, I want to read basically a definition of an exchange traded fund. An exchange traded fund is a type of security that tracks an index, sector, commodity or other asset, but which it can be purchased or sold on a stock exchange the same way a regular stock can. An ETF can be structured to track anything from the price of an individual commodity to a large and diverse collection of securities. Exchange traded funds can even be structured to track a specific investment. So as an example there they can be index ETFs, like and S&P as an example. It’s tracking an index. They can be sector ETFs, commodities, currencies and there’s many different forms of that. I want to pick one just to give you an example here. So before I get into this, this is not a recommendation. I am not telling you to buy or not buy this. I’m literally just using this as an example, okay? So I want to use an industry ETF, okay? So I want to pick just because I thought it was fun, the ETF Jets. J-E-T-S. I bet you can guess what’s it tracking. It’s tracking the airline industry. So I’m going to read you once again the fund summary of what this is trying to do. The investment seeks to track the performance before fees and expenses of the U.S. Global Jets index. The fund uses a passive management approach to track the performance before fees and expenses of the index. The index is composed of exchanged listed common stocks of U.S. and international passenger airlines, aircraft manufacturers, airports and terminal and service companies. So you get the idea. Here’s an industry ETF, it’s tracking the airline industry. And as it states it’s passive. What does that mean? They’re putting things in this basket and it’s not going to change. Therefore when I look up as of today, the top holdings in this are some of your more common airline industries: Delta, American, United, Alaskan. Those are more common, bigger airlines, right? So what is this doing? Let’s say you were somebody that was very bullish on that sector and you didn’t want to go out and buy each individual airline stock. What could you do? You could literally buy this one industry exchange traded fund and then it would give you that as a whole. You can look up online and see what the holdings and percentages are and all that sort of stuff in there. But it’s literally giving you a broad exposure to that industry. Now you have to assume and remember the risk is you’re just in that industry if that’s the only thing you’re investing in. Hopefully that was helpful and gave you a little bit of an inside look of what example of an exchange traded fund may be.