ETFs as Flexible Investment Instruments : NobleTrading Blog

Tuesday, February 3, 2009

ETFs as Flexible Investment Instruments

Exchange Traded Funds (ETFs) are multi-purpose investment instruments which can be used to achieve various portfolio goals. The diversity, simplicity and low-expense of ETFs make them flexible instruments to handle. ETFs are mainly used to achieve following portfolio goals.

When used as primary investment instruments, ETFs offer the traders indirect exposure to different market or sector. A simple buy-and-hold strategy enables traders to profit whenever the tracking product/index (stock, commodities, currencies, market indexes, bonds, etc) goes up.
ETFs can be used to profit from growth of a specific sector, region or economy. There are many sector ETFs, currency ETFs, regional ETFs and emerging market ETFs for this purpose. Trading ETFs is much easier and lesser risky than directly investing to these sectors/regions/markets.
ETFs are good hedging instruments. The easy to go short when ever one need can be used to hedge risk of taking long positions on equities, currencies and other instruments. Many ETFs can be used as options.
ETFs are very good instruments for portfolio diversification. ETFs which track broad markets and sectors themselves are diversified.
ETFs can be used for quick profit and for steady returns. There are many ultra and smart ETFs which can be used for maximize returns. There are also many low-risk ETFs which offer small but steady returns.