DEFINITION of 'ETF of ETFs'
An ETF of ETFs is an exchange-traded fund (ETF) that tracks other ETFs rather than an underlying stock, bond, or index. Like a fund of funds, this new approach provides investors with a method to invest in multiple different strategies with one product. It combines the cost and transparency advantages of the traditional ETF structure with the research and analysis of an actively managed fund. Many well-established providers like Vanguard and Direxion have hopped on the bandwagon through new product offerings that combine different asset classes or rotate between sectors.
BREAKING DOWN 'ETF of ETFs'
An ETF of ETFs is a tool that provides more diversification than a regular ETF. They can be constructed on certain desirable factors such as risk levels, time horizons or sectors. One of these financial instruments can give an investor broad exposure to many sectors and asset classes. On average, ETFs have lower fee structures whereas a managed fund tends to involve more research and analysis. An ETF of ETFs aims to strike a delicate balance between the two and beat a standard benchmark index.
The concept of an ETF of ETFs finds its roots in traditional target-date and other asset allocation funds that seek to provide simple investment solutions. An investment in a quality multi strategy fund is appropriate for novice investors who lack the skill or resources to construct an attractive portfolio in the current environment.
The advantages don't end there. This novel approach affords investors instant diversification, low fees, and exposure to broad based strategies across different asset classes. In the event of a downturn, In the event of a downturn, a well diversified portfolio employing various strategies can help keep losses to a minimum.
Limitations of ETF of ETFs
While many of the newest ETF of ETFs claim to simplify investing, they often employ complex mechanisms that make it difficult to understand the various offerings in the fund. What's more, the products are often highly concentrated and tend to exhibit greater turnover than most actively managed funds. That means if the market turns against the fund, it could quickly become the largest holder of a thinly traded ETF.
A more straightforward – and cheaper – approach involves constructing a portfolio of individual stock and bond ETFs. Moreover, investors must rely on the skill of the portfolio manager to make critical asset allocation and tactically adjust the portfolio on a timely basis. Most empirical research finds a hands-off, buy and hold approach tends to outperform a stock picking strategy.
-
Stock Exchange-Traded Fund (ETF)
A stock exchange-traded fund (ETF) is a security that tracks ... -
Actively Managed ETF
An active managed ETF is a form of exchange-traded fund that ... -
Bond ETF
Bond ETFs are very much like bond mutual funds in that they hold ... -
IPO ETF
An exchange-traded fund that focuses on stocks that have recently ... -
Inverse ETF
An exchange-traded fund (ETF) that is constructed by using various ... -
ETF Futures and Options
ETF Futures and Options are derivative products built on existing ...
-
Investing
A Look At the Growth Of the ETF Industry
Explore the phenomenal growth rate of the ETF industry, and learn some of the principal reasons why ETFs are projected to continue to grow at a rapid pace. -
Investing
The Main Attractions of ETF Investing (SPY)
As the popularity of ETFs soar, a look at the main benefits of these investment vehicles. -
Investing
Exchange-Traded Funds: Diversified and Affordable
Exchange traded funds offer many benefits when compared to stocks and index mutual funds. -
Tech
How To Pick The Best ETF
Of the hundreds of exchange-traded funds on the market, some are bound to fail. Learn how to pick the best of the bunch. -
Investing
5 Reasons to Pick ETFs Over Mutual Funds
Discover five reasons why average investors and sophisticated hedge funds choose ETFs instead of mutual funds to meet their investment goals. -
Investing
Building an All-ETF Portfolio
Balance is the key when selecting an all-ETF portfolio that will hedge against market volatility. -
Investing
4 Trends in the ETF Market to Date in 2016 (SPY)
Learn about four emerging ETF trends in 2016, including what they signal about broader trends in investing and the financial services industry. -
Investing
How Big Is the Global ETF Market? (BLK, STT)
Discover why ETFs are growing much faster than mutual funds, and why some experts predict the ETF market will double by 2020.
-
What exactly is an ETF portfolio?
Learn what exchange-traded funds (ETFs) are and their advantages to investors, what a portfolio of ETFs is, and discover ... Read Answer >> -
Do ETFs pay capital gains?
Learn about exchange-traded funds (ETFs), which can generate capital gains for their shareholders due to occasional and substantial ... Read Answer >>