Each investor seeks to diversify the portfolio as much as possible, to diversify sources of income. ETF funds can be a profitable addition to both an experienced manager and a newcomer to the stock market. To obtain a good profit using this tool it is necessary to study its features in detail.
ETF funds - a proven way to build a diversified portfolio
ETF (from the English. Exchange Traded Funds - exchange-traded investment funds) are open-end investment funds whose shares are freely traded on the exchange.
They are very popular with American investors, although they first appeared recently - in 1990 in Canada, and in 1993 - in the United States. In 2018, the market capitalization reached $ 3 trillion.
Exchange Traded Funds resemble a basket in which there are a lot of stocks or bonds. In the future, their holder will receive dividends. This tool is advisable to use for long-term investment, getting rid of the long and complex process of analyzing companies.
Exchange-traded investment funds are distinguished by copying the structure of stock indices. No changes are made, exclusively full copying. A prime example is PowerShares (QQQ), a copy of the NASDAQ 100 index. On the xStation5 platform, it is displayed as US100.
ETFs act as follows: they acquire securities with a full copy of the basic part, and then they sell them as a separate asset for investment. Arbitrageurs immediately begin to track fluctuations, if the value of shares of exchange-traded investment funds begins to differ from assets. They use robots to intervene in the transaction process and earn a difference in rates.
Among the benefits of investing in ETFs should be highlighted:
- saving time and resources on choosing stocks manually, as professional market participants have already done;
- the possibility of diversification, for example, you can even participate in the rental of real estate;
- You can start working with ETF funds with the purchase of one share, gradually increasing the volume.
In America, this market is quite well developed, which gives an additional advantage - diversity. The yield of Exchange Traded Funds depends on the exchange rate, base index quotations and securities.
Is it safe to work with ETF funds?
Each organization conducts activities in compliance with the requirements of the UCITS - Directive on collective investment. It regulates the quality and diversity of assets, the use of additional tools.
Some Russians prefer to work with bank deposits. Banks really enjoy huge confidence, but exchange-traded investment funds have long been recognized as a safer way to save money. The investor's money is protected by the structure of a foreign investment fund.
Given the reliability of ETF funds, choosing a specific option is relatively simple. You need to focus on three main indicators:
- investor opinion about the provider;
- main index prospects;
- proposed currencies.
In the CIS countries, investing in ETFs is much less popular. For example, on the Moscow Stock Exchange you can find only one provider - FinEx. The investor has the right to work only with those funds that are registered in the Russian market.
Features of the payment of dividends ETF funds
Exchange Traded Funds hold certain profits. It depends on a number of factors, including the total number of shares in the fund’s portfolio. The regularity of payments is established by a specific organization, the most common are three options - once every 3, 6 and 12 months.
On the xStation5 platform, you can explore the profit payment schedule. Data is easy to find through the search line in the section "Market Overview", and then - "Information about the tool." You can also study the following specific ETF fund data:
- investment portfolio components;
- market capitalization;
- issued securities.
There are about 5,000 ETF funds in the world. The most popular ones stand out for their impressive age, showing the ability to survive any crisis and demonstrating the high liquidity of securities. SPDRs, iShares and VIPERs are notable among them.