TYPES OF
ETFS

Now that you know what ETFs are, let’s explore the different ETF types.

There are over 8,000 ETFs available worldwide and it’s important to get familiar with the different types, because each can be used to pursue different financial goals.

Let’s dive in.

Active ETFs are managed by professional investors who pick and choose individual stocks for the fund and seek to outperform a benchmark.

They’re typically at a higher cost than index ETFs.

This can lead to higher potential returns and also a greater risk of loss.

They may be suitable for anyone trying to take advantage of unique market opportunities or dislocations.

If you’re more of a long-term investor, there are a few other ETF options you might want to try.

Index ETFs seek to track the performance of an index.

They typically have lower fees and their long-term returns aim to track the overall performance of their benchmark index.

For instance, there are ETFs that track the return of the S&P 500 index.

Stock ETFs are traded on an exchange, which means investors can buy and sell their ETF shares throughout the day just like individual stocks.

They provide investors with either targeted exposure to specific kinds of sectors or different blends of index allocations, without having to purchase each one individually.

Bond ETFs offer exposure to a bundle of bonds that could be relatively difficult and expensive for investors to access on their own.

They can be bought, sold, and liquidated just like stocks.

Historically, they’ve been less risky than stocks but yield lower long-term returns.

Alternatively, high yield bond ETFs are associated with less creditworthy entities and aim to offer higher returns as a form of compensation for the increased risk involved.

Commodity ETFs focus on price movements in commodities or physical assets, offering you exposure without having to actually buy or store them directly.

Historically, though somewhat volatile, commodities have tended to rise in value when other assets such as stocks and bonds fall in value, making them a potentially useful way to pursue diversification.

In addition, commodity ETFs may also be a hedge against inflation, as commodities have tended to rise with inflation.

International ETFs enable you to invest in companies outside of your country and get exposure to foreign markets, which can sometimes be unaffected when things get rocky back home.

Naturally, each country has its own political and economic fluctuations. so make sure you’re informed and up to date about your chosen market.

The last type of ETF we’ll cover in this video is thematic ETFs.

These are designed to focus on a specific sector or theme, such as environmental, sustainability, technology, or healthcare.

They help you invest in something you may love and care for, while still offering the diversification that comes with an ETF.

The options we’ve seen are some of the main types of ETFs, though of course there are more.

So which do you think is best for you?

We’ll learn all about choosing the right ETF in our next lesson.

See you there.

eToro encourages its customers to carefully consider the funds’ investment objectives, risks, and charges and expenses carefully before investing. This and other information can be found in the funds’ prospectuses or, if available, the summary prospectuses which may be obtained by visiting each fund company’s website or www.sec.gov/edgar/search. For iShares funds please visit www.iShares.com/prospectus. Read the prospectuses carefully before investing.