Triple-digit returns... yields above 10%... exposure
to areas off limits just months ago... no wonder exchange-traded funds
(ETFs) are considered the most powerful investment vehicle on the
In this course, I'll serve as
your guiding light to this unrivaled asset class. As a
bonus, I'll also show you my favorite spots --
including names and ticker symbols -- to start your search for
you asked the average investor about exchange-traded funds 10
years ago, I'd be willing to bet you'd have received a lot of blank
How times have changed...
Today, the buzz surrounding ETFs and their closed-end fund cousins is
second to none. And for good reason.
You see, exchange-traded and closed-end funds offer a way of investing
that was unheard of a few years ago. And with this relatively new breed
of investment have come some great returns and high yields for well-placed investors.
Returns of this type are truly special -- and simply investing in any
fund isn't a ticket to triple-digit returns or enormous yields. However, with the new
markets being opened up by these jewels nearly every day, there are more
opportunities than ever before to profit.
But how can I be so sure?
A Foremost Voice in Fund
Because I know a thing or two about
investing in funds and ETFs.
My name is Nathan Slaughter, and I've been tracking the fund world
for years. In fact, I write one of the
most popular fund-investing advisories on the market --
The ETF Authority.
My hope is that this course will show you just how you can use ETFs and also give you the base you need to become a
successful fund investor.
To start, I want to give you a taste of just how much these gems have
grown in popularity over the last few years.
Since the first ETF was
made available to investors in 1993, the market for the funds has
grown like kudzu.
They started out as
plain-vanilla vehicles designed to track stock indices (examples include
Standard & Poor's Depositary Receipts (NYSE: SPY), which tracks the S&P 500).
But over the past 15 years ETFs have blossomed into a wide-ranging
universe of securities covering hundreds of exotic indexes, industry
sectors, commodities, and foreign markets.
At the end of 2009, there were 797 ETFs in the U.S. Add in their
627 closed-end-fund-cousins, and you have a total of 1,424 funds.
In other words, funds constitute 23% of the more than
6,113 names traded on the NYSE and Nasdaq. You are ignoring a
huge pool of opportunities if you aren't looking to these unique
Not surprisingly, millions of
investors are looking to these investor-friendly securities.
In fact, ETFs are the fastest-growing segment of Wall Street. A total of 125 new ETFs
debuted in 2009 -- about one every other trading day.
And the money is following
suit. At the end of 1999,
global assets held in ETFs was less than $40 billion. Today, there is
$777 billion (as of the end of 2009) in U.S. ETFs alone... and more than
$1 trillion held in these vehicles around the world!
So What Are ETFs Anyway?
Exchange-traded funds are
baskets of stocks, bonds or other securities that are divided up into
many "shares" that you can buy and sell at any time during the trading
They are simple and transparent
investment vehicles. For example, the Dow Diamonds ETF (AMEX: DIA) holds
all 30 stocks in the Dow Jones Industrials Average and moves up and down
from minute to minute, just like the Dow.
Whenever an investor purchases an ETF, he or
she is basically investing in the performance of an underlying bundle of
securities -- usually those representing a particular index or sector.
Exchange-traded funds don't sell shares
directly to investors. Instead, each ETF's sponsor issues large blocks
(often of 50,000 shares or more) that are known as creation units. These
units are then bought by an "authorized participant" -- typically a
market maker, specialist, or institutional investor -- which obtains
shares of the underlying securities and places them in a trust. The
authorized participant then splits up these creation units into ETF
shares -- each of which represents a legal claim to a tiny fraction of
the assets in the creation unit -- and then sells them on a secondary
market to individual investors.
To liquidate their
holdings, most investors simply sell their ETF shares to other investors
on the open market. However, it is possible to amass enough ETF shares
to redeem them for one creation unit and then redeem the creation unit
for the underlying securities. Because of the large number of shares
involved, individual investors seldom use this option.
Now that you have a better understanding of the
way ETFs work, it's time to show you exactly how these tools can help
you become a more profitable investor. My next section covers the amazing
returns that can be seen from international ETFs... and even includes
one of my favorite international picks for right now.
Continue to Section One: How to Access High-Growth
International Stocks with ETFs...