This page provides selected, categorized and annotated links about Exchange-Traded Funds for investors and traders.
It's a companion resource to The Seeking Alpha ETF Investing Guide, a guide to long-term investing with ETFs. To suggest an addition, please leave a comment below.
Categories: ETF Basics - Investment Strategy Using ETFs - ETF Families - Supplementing an ETF Portfolio With Closed-End Country Funds - Indexing Literature - Index Providers - Asset Allocation Literature - Asset Allocation Tools -
Data & Literature about Asset Classes - ETF News.
- The Seeking Alpha ETF Investing Guide provides a basic explanation of ETFs in A 1-Page ETF Primer, and lists the The 7 Advantages of ETFs Over Index Mutual Funds and The Single (But Serious) Disadvantage of ETFs.
- IndexUniverse.com's ETF section is a collection of up-to-date articles analyzing all segments of the ETF market. Some of the best commentary on the ETF industry is augmented by articles by indexing giants like Rob Arnott, John Bogle and Robert Shiller. And the best part: It's all free.
- Morningstar's coverage of ETFs includes an introduction to ETFs, a list of the most actively traded ETFs, and a mapping of US stock ETFs into Morningstar's large/mid/small cap and value/blend/growth categories. Many of the features are free but require registration.
- Yahoo Finance's ETF Center contains a set of articles provided by ETFZone. They cover basic issues like how ETFs work, the tax advantages of ETFs, and asset allocation with ETFs. A couple of articles cover more advanced topics like ETF options. The articles are clear and well-written but occasionally spineless. A listing of popular ETFs points out that the Nasdaq 100 ETF is widely perceived as a technology benchmark, but fails to mention that it's a poor tool for sector investing (it covers retail stocks like Home Depot and omits the technology stocks traded on the NYSE).
Investment Strategy Using ETFs
- Seeking Alpha's ETF Investing Guide suggests A Core ETF Portfolio, has a basic discussion of do-it-yourself asset allocation, and discusses rebalancing and tax-loss selling using ETFs. It argues that wealthy investors in particular could substantially boost their returns by switching to self-managed portfolios of ETFs.
- For insights into using ETFs for strategic asset allocation, see Mebane Faber's Strategies in Tactical Asset Allocation, Geoff Considine's Testing Forward Looking Asset Allocation and Portfolio Building With Forward Looking Asset Allocation, and Suna Reyent's In Search of Low (or Negative) Correlation Between Asset Returns.
- The American Stock Exchange's listing of ETFs covers all the major families, divides them into broad-based, sector and international categories, and offers a screening tool. The most liquid ETFs are DIA, QQQ and SPY, which are widely used by active traders. But they have higher expense ratios than Barclays' iShares, and are therefore less appropriate for longer term investors.
- BLDRs are a family of four ETFs based on The Bank of New York ADR Index which tracks U.S. traded depositary receipts of foreign companies. The four BLDRs are: the Emerging Markets 50 ADR Index Fund, the Developed Markets 100 ADR Index Fund, the Europe 100 ADR Index Fund, and the Asia 50 ADR Index Fund. Like the Nasdaq 100 fund, these ETFs suffer from the problem that using the exchange where a stock is traded as the criterion for index inclusion is somewhat arbitrary. (See Why You Shouldn't Own DIA, SPY or QQQ from The Radical Guide to Investing for more on this.)
- Fidelity's first entry to the ETF market is ONEQ, an ETF that tracks the NASDAQ Composite index. Unlike QQQ, ONEQ includes mid and small cap stocks, but suffers the same problems as other ETFs that track stocks traded on a specific exchange. For more on this, see the discussion of QQQ here.
- Fresco Shares are (mainly European) ETFs provided by UBS and State Street. There are two US ETFs, which track the Dow Jones Euro Stoxx 50 and the Dow Jones Stoxx 50 indexes.
- Barclays' iShares is the broadest and (in many cases) lowest cost family of ETFs. iShares cover the US stock market divided by market cap (S&P and Russell indexes), value/growth, and 12 industry sectors; also 5 US bond index funds and numerous international index funds (MSCI and S&P). iShares offers the cheapest S&P 500 index fund (IVV, expense ratio 0.09%).
- Merrill Lynch HOLDRs are fixed baskets of stocks representing 15 US equity sectors, one broad global market basket, and a European basket. They differ from other ETFs in that the baskets of stocks they represent do not track indexes that are periodically updated with additions and deletions, but are fixed. As companies merge, go out of business, or become more dominant, the baskets become more concentrated. This feature means that HOLDRs are more suitable for short term trading than for asset allocation in diversified, long term portfolios.
- PowerShares are ETFs that track "dynamic" indexes. "Dynamic indexes" are indexes whose constituents change based on pre-set quantitative rules, in this case valuation, growth and other metrics. PowerShares offers two broad index ETFs (one of which tracks a dynamic index of NASDAQ stocks), specialized ETFs covering China, dividend-paying stocks and a clean energy portfolio, and a set of US style ETFs that cover large, mid and small cap growth and value.
- Rydex offers an ETF that contains equal weightings of the stocks in the S&P 500 index, as opposed to the usual market-cap weighting. Equal-weighting requires portfolio rebalancing (in this case quarterly), and that raises trading costs and makes the index less tax efficient. The equal weight S&P should outperform the market-cap weighted index if the large cap stocks that dominate the market-cap weighted index under-perform.
- Select Sector SPDRs is a family of 9 US sector ETFs managed by State Street and the American Stock Exchange. The sectors covered are: consumer discretionary, consumer staples, energy, financial, health care, industrial, materials, technology and utilities.
- StreetTracks is the family of ETFs from State Street Global Advisors. It includes 5 ETFs that track Dow Jones indexes, 2 that track Fortune indexes, 2 Morgan Stanley sector indexes, and the Wilshire REIT Index Fund.
- Vanguard VIPERs are ETFs offered by index mutual fund leader Vanguard. VIPERs are ETF share classes of existing Vanguard index mutual funds, and thus differ from families of stand-alone ETFs. For example, VIPERs may suffer from lower tax effiency than other ETFs, depending on whether or not their underlying index mutual fund has large enough unrealized losses to cover redemptions. (For more explanation of this see A 1-Page ETF Primer.) There are currently only two VIPERs (they track an extended US market index and a total US market index), though Vanguard has stated that it intends to offer ETFs for all its mutual funds. The theoretical tax inefficiency of VIPERs may become more relevant with newer Vanguard sector funds that don't have unrealized losses from the recent bear market.
Supplementing an ETF Portfolio With Closed-End Country Funds
- The Radical Guide to Investing advocates using closed-end funds to cover emerging market stocks. It covers emerging markets as an asset class, outlines the case for closed-end funds, and discusses buying closed-end funds in practice.
- Closed-End Fund Center lists most closed-end funds and provides a ranking of funds by discount to net asset value.
- ETF Connect is run by closed-end fund provider Nuveen Investments. Like the Closed-End Fund Center, ETF Connect provides a ranking of closed-end funds by discount to net asset value. ETF Connect confusingly calls ETFs "Index ETFs" and closed-end funds "Closed-End ETFs".
- Thomas Herzfeld Advisors' links to closed-end funds is provided by a Miami-based firm that specializes in closed-end funds.
- The Radical Guide to Investing quotes estimates of retail stock pickers' underperformance and the aggregate underperformance of actively managed mutual funds.
- The Benefits of Core Active Management is a short paper by bond fund firm Pimco arguing that active management of bond portfolios generates superior returns to passive indexing.
- Bogle Financial Markets Research Center
contains the speeches of the champion of practical indexing, John Bogle. The speeches are thought-provoking and elegantly delivered. The Policy Portfolio in an Era of Subdued Returns, for example, is an outstanding speech that recaps Bogle's method of forecasting the medium term returns of US bonds and equities and the advantages of indexing, and discusses stock/bond asset allocation.
- Dimensional Fund Advisors runs index funds for institutions and financial advisors. Its web site offers some useful free material on indexing and asset allocation.
- The Economists provides important graphical analysis of economists' ability to forecast economic growth. Equally applicable to analysts' and strategists' ability to predict stock and bond markets for active portfolio management. Takes time to download.
- IndexFunds.com provides listing and analysis of indexes, ETFs, and index funds, and articles about indexing.
- The Journal Of Indexes offers excellent tools and articles, including statistics (such as and the number of mutual funds outperformed by their benchmark indexes) and articles about indexes, index funds and ETF families. The table of Selected Major Indexes shows performance of equity and bond indexes over multi-year periods. Access to archives requires free membership.
- State Street Global Advisors (SSgA) has a research section in its web site with articles and presentations about indexing, indexes, ETFs and asset allocation. Market Uncertainty and the Role of Indexing Part 1 and Part 2 examine active manager performance, and argue that contrary to popular belief active managers do not outperform their index benchmarks in down markets.
- The Bank of New York publishes three indexes which track Depositary Receipts and New York Shares traded on the NYSE, AMEX and NASDAQ: a composite index of all ADRs, and three regional indexes which cover Europe, Asia and Latin America.
Dow Jones publishes the Dow Jones Industrial Average and a set of sector indexes. The site also contains performance and fundamental valuation data for the indexes.
- Fortune Indexes manages the Fortune 500 Index, and the Fortune e-50 Index. The Fortune 500 Index is the basis of an ETF offered by streetTracks, and can be useful as a tax-loss selling replacement for the S&P 500.
- HedgeIndex contains indexes of hedge fund performance managed by Credit Suisse First Boston and Tremont. The indexes track 13 hedge fund styles, and the site allows you to compare the hedge fund indexes to other major stock and bond indexes. Some of the material requires free registration.
- Morgan Stanley Capital International (MSCI) provides the most popular international equity indexes, and also indexes tracking fixed income (bonds) and hedge fund performance. Some features require free registration.
- Standard & Poors manages the most popular US stock index (the S&P 500) and many others. Its web site provides information about index performance, index inclusion and deletion policy, and changes to the indexes. Particularly useful are downloadable spreadsheets for historical, current and forecast S&P 500 earnings, dividends and PE ratio.
- Wilshire publishes a series of indexes, the most popular of which are the broad market Wilshire 5000 and the Wilshire Small Cap and Micro Cap indexes. The site provides data about index performance, methodology and adjustments. Wilshire indexes are used for Barclays iShares stock ETFs.
Asset Allocation Literature
- The Radical Guide to Investing discusses the basic principles of asset allocation. It argues that most investors can save money by handling their own asset allocation and portfolio management, and that ETFs make this easy to do.
- Efficient Frontier describes itself as "an online journal of practical asset allocation". It's edited by William Bernstein, author of The Intelligent Asset Allocator, and contains articles about asset classes, investment strategy and asset allocation. Bernstein advocates pure indexing and asset allocation; his investment advisory firm uses index mutual funds from Dimensinal Fund Advisors.
- Ibbotson Associates offers free presentations and abstracts of articles about asset allocation. The abstracts of articles are in the Knowlege Center; access to the full articles often requires paid registration at the sites of the journals that published them.
- Investing for the 21st Century is an online investment book by Frank Armstrong, a Miami fee-only financial advisor, that advocates asset allocation using mutual funds and indexind for the core of your portfolio. It's non-technical and fun to read.
- TAM Asset Management is an investment advisory firm that uses index funds from Dimensional Fund Advisors and Vanguard for asset allocation portfolios. Its web site contains some interesting articles, for example about total market index funds.
Asset Allocation Tools
- Asset-Analysis.com follows a statistical approach to asset allocation, and offers tutorials and a group of basic model portfolios determined by risk tolerance. But you have to put up with a slew of pop-up and on-screen ads.
- Cohen & Steers offers a tool that calculates the impact on volatility and returns of adding REITs to a portfolio of stocks, bonds and cash. The tool requires the automatic download of Macromedia Flash Player.
- ETF Zone suggests basic asset allocations for four types of portfolio based on the investor's age. The portfolios are somewhat arbitrary, and simple asset allocation based on age ignores the individual's financial needs and situation.
- Finportfolio's online asset allocation tools are excellent. Based on modern portofolio theory, Finportfolio.com can design portfolios of key asset classes suited to an individual's needs and circumstances, including retirement, education costs, loan repayment (including mortgage) and lump sum expenses. The site requires time and effort, but is worth it. Registration is free. A premium service that analyzes stock portfolios is unnecessary for ETF investors.
- Smart Money has a simple but neat asset allocation tool that covers three types of investors: standard, parents and retirees.
- Vanguard offers useful advice in the section of its web site called How to Create Your Investment Plan. It includes an interactive investment questionaire that helps determine an asset allocation plan. Vanguard recommends you implement the plan using Vanguard index mutual funds rather than ETFs.
Data & Literature About Asset Classes
- Cohen & Steers is a fund management company that offers open and closed-end real estate investment trust (REIT) funds, and provides an index to Barclays for its Cohen & Steers REIT index ETF. The Cohen & Steers web site includes material about REITs as an asset class.
- Global Financial Data provides graphs and freely downloadable historical data for US and foreign stock indexes, exchange rates, interest rates, commodities and inflation.
- The Value of Asset Allocation and Bonds is a 2 page paper by bond fund firm Pimco arguing for the addition of bonds as an asset class to stock portfolios. Pimco's web site also offers resources about bonds, including separate investor guides to Municipal, Corporate, Inflation-indexed Treasury and Mortgage bonds in its Bonds Resources section.
- American Stock Exchange's ETF news provides news from the major providers and regulators.
- ETF Investor is the deepest site devoted to exchange-traded funds and closed-end funds on the Web. It covers most issues relevant to ETFs: (1) Which are the right ETFs to include in a long-term, diversified portfolio? (2) How should long-term investors allocate their assets between different ETFs? (3) What short-term trading opportunities are there with ETFs?, (4) How do ETFs compare to traditional index mutual funds? (5) What new ETFs are coming, and what will be their impact on the underlying asset classes?, and (6) How are the valuations and attractiveness of various sector and style ETFs? These topics are covered by numerous writers, including George Bijak, editor of Business Cycle Investor; Tom Coyne, the editor of Index Investor; Tate Dwinnel, author of Canslim Investing; Dave Fry, founder and editor of ETF Digest; David Jackson, author of Seeking Alpha and The Internet Stock Blog; Ezra Marbach, author of The China Stock Blog (he writes only about China ETFs); Roger Nusbaum, financial advisor and author of his own blog (Random Roger's Big Picture); Nick Perry, who covers ETFs for Schaeffer's Investment Research; Scott Rothbort, president of LakeView Asset Management; Todd Stein & Steven McIntyire, editors of the Texas Hedge Report, and J.D. Steinhilber, founder of ETF newsletter and investment management firm Agile Investing. Readers can search the site by keyword and can also view all the posts by ticker symbol, asset class, investment strategy or author. Posts are up to 5 times daily.
- The Investment Company Institute publishes monthly statistics showing total assets in ETFs, and net issuance of new ETF shares. Total assets are divided into domestic broad-based equity indexes, domestic sector/industry equity indexes, global/international equity indexes, and bond indexes.
- The NASDAQ Exchange offers a heat map of ETFs, showing price changes for 100 ETFs in one chart, and a heat map of the constituents of the NASDAQ 100 ETF.