S&P500 is market cap based index. The top 28 companies have 40% contribution to the index, while top 45 companies provide 50% contribution, and top 180 companies provide 80% contribution. As an investor it really does not help to invest in index hoping to have exposure to US economy. In last couple of years, Exchange traded funds (ETFs) as an investment vehicle has gained momentum among individual investors. In addition, we can also see never ending queue of new ETF based funds either being launched or waiting in the wings. There are few key aspects such as low expenses, trading ability during normal market hours, and relative transparency. Let us take an example of S&P500. We expect that buying S&P500 based ETF fund will provide us exposure to US economy. continue reading rest of the article….
In last five years or so, Exchange Traded Funds (ETFs) have grown in numbers and it asset values. In my view, ETF is another form of investing vehicle available (among many others) to investing or trading community. The major attraction for ETF has been low cost expenses and fees in comparison to mutual funds and ability in trade during market hours. Like any other investing vehicles, I believe ETFs are good vehicles depending upon how/why an individual investor uses in its portfolio. The simplicity with which you can buy and sell an ETF makes it even more difficult to understand how it is structured, what are its constituents, etc., So before you buy an ETF you much understand why you want to buy it and what role it plays in your portfolio. Broad market exposure and access to alternative assets are two important roles ETF can play in your portfolios.