ETFs offer an easy way to invest in one commodity or stock index. Do you believe the price of one particular commodity will rise, or the value of a stock index will increase? You can most likely find an ETF tracking it.
Shares in ETFs can be bought at stock exchanges. How the prices or indexes are tracked vary among different ETFs. It can be through futures contracts, stocks, bonds, or actually physically storing a commodity. This ETF guide will give a very brief overview of some popular types of ETFs.
ETFs Tracking an Index
The most common kind of ETFs is the type that tracks an index. If you believe the NASDAQ will increase in value, you can actually invest in a single share, attempting to replicate the return of the entire index. This is done either by holding the contents of the index or by holding a representative sample of securities.
Gold ETFs
Gold ETFs attempt to track the price of gold. This is most precisely done by actually storing gold. However, this is associated with significant expenses as security and transport of large quantities of gold is costly. Instead, many gold ETFs trade in futures contracts or stocks of gold mining companies.
Energy ETFs
Another popular type are energy ETFs like a natural gas ETF and Oil ETFs.
As an example, tracking the price of oil is done by futures contracts and stocks in oil companies. As with other areas of ETFs, it is also possible to invest in falling oil prices, by buying shares in short oil ETFs. Another option is ETFs actually trying to double the return offered by oil prices, so called leveraged ETFs.
Thus, the investor is spoiled for choices when it comes to investing in ETFs. Whatever you want to invest in, you are likely to find an ETF through which it is possible.
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