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Are there different kinds of ETFs or just one?


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It is maybe the asset that has deeply changed the asset management in the last 10 years. ETFs are the great trend in investments and it has continuously grown since its launch in the 1990s. We have already described what they are, their characteristics and advantages, but it is time now to wonder: how many types of ETF are there in the market? The main group is the traditional index-based ETF, focused in tracking specific assets (bonds, market indexes or even equities that pay dividends), countries, sectors or even styles (mid-cap, large-cap). They are the majority and the broadly known. However, there are other kinds of ETF that are also interesting in order to learn about the variety that this recent asset has reached:
  • Actively managed ETF: The first reaction is: am I reading right? Yes, you are. They are actively managed to meet a particular investment goal. It can sound contradictory and they are really a little group. They try to sum the advantages of both ETF and mutual funds, but the disadvantages are that fees are higher than traditional ETF and the transparency is a middle point between ETF (the highest) and mutual funds (the lowest).
  • Inverse ETF: These ones use derivatives to go just in the opposite direction of the market. The question that emerges is: what if the market wins? Am I going to lose? No. Inverse ETF are design to invest in short-term to hedge longer investments or take advantage of negative markets.
  • Leveraged ETF: They use derivatives to get higher returns that the reference index obtains. They try to multiply the daily earnings, but in this case, if the index loses, you will also multiply your negative performance.
  • Commodity and currency ETF: They are focused on specific physical assets, but also in the futures markets. Metals, agriculture, energy, currencies… It is a way to diversify investments in these assets.
  • Innovative ETF: Imagination has no limits and ETF also shows it. In the long list of innovations in this asset, there are ETF of ETF, Volatility ETF or Tax-Deferred ETF, just to name a few of them.
This list attempts to classify the different types of ETF, but there will be surely more in the near future. The volume of managed wealth and inflows to this assets reached continuous records and we are sure that this will not be the last time that we will write about them.

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