In the world of investing, an ETF – or exchange traded fund – is an investment fund that is traded on an exchange much like a stock. Exchange traded funds have realized growing popularity in the investment world in light of their low fees, tax efficiency and stock-like features. There are a wide range of ETFs available to invest in, including specific sectors and indexes such as the Dow Jones Industrial Average and the Standard & Poors 500, as well as retail and technology.
An ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset values over the course of the trading day. By investing in an ETF, you can effectively hold a diverse group of securities without the costs and time involved in investing in many different stocks.
An S&P ETF is an ideal way to speculate on the S&P 500 stock index. The S&P covers 500 large-cap stocks across a wide range of sectors, making the S&P a diverse and relatively low risk index to invest in.
The S&P 500 ETF aims to track the index as closely as possible. Most S&P exchange traded funds do a very good job of tracking the index accurately.
Trading this ETF is often suitable for both long term investors and short term speculators alike. One advantage for longer term investors is that management fees on ETFs are usually much lower than mutual funds and unit trusts.
There are many different types of S&P ETF including short S&P ETFs, inverse S&P ETFs, long ETFs and leveraged S&P ETFs.
Let’s look at these below:
Inverse S&P ETFs
These are funds that aim to do the exact opposite of the S&P. For example if the sp500 rose by 10% over a quarter, the inverse fund would aim to fall by 10% and vice versa. If you wanted to speculate on the market going down, you could buy an inverse S&P ETF. They are also commonly referred to as reverse S&P ETFs.
These types of funds are an excellent hedge against risk, but may be extremely volatile and must be utilized carefully
There are S&P ETFs that use leverage. Leverage is where additional funds are used to try to amplify market moves. For example a 2x leveraged S&P ETF would aim to gain 10% if the S&P moved 5% and vice versa. Leverage works both ways, it does increase your gains, but it also increases your losses.
There are even 3x S&P ETFs around. Caution is strongly advised with leveraged ETFs as losses can result very quickly.
Where to buy S&P 500 exchange traded funds?
ETFs can be purchased just like a regular stock. All you need to know is the symbol. Prices charged by stock brokers for trading with them can vary a lot. You definitely want to be sure you are getting a good deal for your money.
If you would like to compare the different fees charged by brokers, you can do so at my discount stock brokers page.
So what are some of the popular S&P ETFs?
SPY – SPDR S&P 500 ETF: SPY was the first and is still the largest ETF tracking the S & P 500. This inexpensive fund is widely regarded as the standard for measuring large-capitalization U.S. stock market performance.
IVW – iShares S&P 500 Growth Index Fund: Barclays’ slightly less expensive version of the SPDR also tracks the S&P 500 index.
SSO – Ultra S&P 500 ETF(2x leveraged ETF): This investment fund seeks daily investment results, prior to fees and expenses, that correspond to twice the daily performance of the Standard & Poors 500.
SDS – UltraShort S&P 500 ETF (inverse ETF): This investment fund seeks daily investment results, before fees and expenses, which correspond to twice the inverse (opposite) of the daily performance of the Standard &Poors 500