Smart Exchange Traded Fund (etf) Strategies

Smart Exchange Traded Fund (etf) Strategies

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Different investment strategies for ETFs that involve being bundled, shorted, optioned, hedged or otherwise can be utilised when including them in your investment portfolio. In short, Exchange-Traded Funds trade in the same manner as shares, but are built like a managed fund. ETFs can be an excellent addition to individual portfolios for long-term gains by generally following the simplest investment strategies.

ETFs were introduced into the Australian market in 2001 and after years of slow growth are finally gaining traction. In fact, their growth is expected to double in Australian markets during 2009. With a wide-range of ETFs now available, there are many investment strategies that can be employed for increasing portfolio growth. The following are some of the more aggressive strategies that involve Exchange-Traded Funds.

First and foremost, as with any trading strategy, use common sense when trading ETFs. Set your Stop Loss and stick with it. Look at your ETFs as a long-term investment strategy. Set your take profit prices and diversify your investments between multiple ETFs.

If you are familiar with hedge funds, pairs trading will be an investment strategy that you're accustomed to. Pairs trading with ETFs is actually a much simpler process, though. On the one hand, a stock may outperform its sector, however as an investor you're not confident about which direction the sector will move. The key is to catch the sector versus stock performance differential by purchasing the stock and short-selling that stock's sector ETF. This particular strategy has a lower potential return, but can be done in any market.

A second strategy involves idle cash. Some investors have long-term cash in their portfolio, which can be placed in a short-term bond ETF rather than a money market fund. Money invested in this manner will often double or triple money market returns, but the key is to ensure that you don't use up all of your gains on brokerage fees. Brokerage fees for selling your bond ETFs can be higher than market fund early withdrawal penalties. Do your research when entering this arena. The up side to this type of ETF investment is that it's less risky than stocks.

While most investors want to create an investment portfolio that is as diverse as possible, there are some merits to an ETF-only portfolio. The clear reason is that ETFs allow you to have a mix of assets that are inexpensive and simple. Utilising this method of investing, you'll probably be disheartened about the lack of single stock gains; however, the trade-off is that you'll also miss out on the single stock losses.

About the Author:
ETFs are a great investment tool for the novice investor as well as the professional. They are also perfect for adding diversity and solid growth potential to your portfolio. Each method described above still involves risk, however. Whether you are pairs trading, parking cash or creating an entire portfolio using ETFs, use common sense, research the ETFs and any brokerage fees that are associated with them and utilise them as a long-term investment st



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