[Editor’s note: The following article appeared on www.rockbottomreport.com on November 14.]
If you are not yet familiar with the ETF - Exchange Traded Fund - now may be the best time to acquaint yourself with these dynamic investment vehicles. In a survey of investment professionals conducted in March 2008, 67% called ETFs the most innovative investment vehicle of the last two decades and 60% reported that ETFs have fundamentally changed the way they construct investment portfolios.
An ETF is similar to a mutual fund in that it holds a basket of stocks with a unified theme. An ETF, unlike mutual funds, can be bought and sold like any other equity trading on the stock market. It has a ticker symbol and can be purchased through any discount or full service broker in the same way you would purchase, for example, IBM or Apple.
ETF’s provide individual investors with the flexibility to fine tune their portfolio’s to better reflect what is going on in the investment world. There is an ETF for nearly every imaginable investment scenario - gold bears, gold bulls, energy bear/bull, financial bear/bull, Dow, S&P, Nasdaq, Europe, India, China, etc.
With a bit of homework and creativity, you can structure your portfolio in a way to hedge against any kind of investment scenario with a few strategic ETF purchases.
For example, if you were one of the astute investors who felt the world was not yet ready for $147/barrel oil and thought it was time for a correction, you could have bought Horizons BetaPro Energy Bear fund (TSX: T. HED, Stock Forum) and doubled your money in the last few months (actually, you could have made nearly 300% had you sold at the peak!). Not a bad return, given the rest of the world lost 25%-50% of its value in the same time frame.
In the same frame of thought, if you think oil has had its fair share of getting beat up and is ready to start moving back up, you would be selling HED and buying the Energy Bull fund (TSX: T.HEU, Stock Forum) which was decimated from a high of $30, trading currently at $5.64 Cdn.
Making a 100%-300% profit as oil tumbled, and a chance to do it again as the black gooey stuff gets set for a rebound. That is the magic of ETFs.
The biggest advantage to trading ETFs lies in the fact that you do not have to sift through countless company-specific financial reports and technical data, in an effort to find the best possible investment within a sector. You are playing the actual commodity on its way up or down, with as much effort as it takes as placing a trade in your online brokerage account.
I personally feel gold is highly undervalued and spring loaded, ready to be decoupled from the Dow and the general economic ebb and flow. The easiest way to play pure gold is to purchase Gold Bull ETFs. In Canada, the Horizons BetaPro Global Gold Bull fund (TSX: T.HGU, Stock Forum) closed yesterday at $6.38, up 17% from the previous day. It’s attractively priced, offering smaller investors solid leverage and inexpensive entry into the pure gold market.
The Horizons family of ETFs cover a broad range of investment scenarios, you can check them out at https://www.hpbetfs.com.
By actively managing your portfolio with the right mix of ETFs, you have more of a chance at growing your portfolio rapidly and with limited risk; whether the market is going up or down.
This article was written by a member of the Stockhouse community.
Read more Stockhouse articles by Andrew Delic.