ETFs or Exchange Traded Funds - What They Are and How I Use Them

ETFs are essentially investment vehicles that allow investors to purchase a basket of stocks that can target specific segments or sectors of the market, a very efficient and inexpensive ways gain exposure to the best performing sectors. Spyder Select S&P 500 ETFs are a great example.

(click on the charts for easier viewing)

Sector Select Spyder ETFs

GWM Model Portfolio currently hold  XLF, XLV and XLI.

Each of the market sectors represented by these ETFs come in and out of favor as time goes by. Utilities were top performers in early 2013, but faded badly in the second half of 2013. Financials and Healthcare are now leading the market.

Sector Rotation

GWM Model Portfolios are broken down into sub-components we call Folios. One of our Folios is called Sector Rotation.In the Sector Rotation Folio we want to invest in the leading sectors at the moment. We compare the relative performance of the sectors on a regular basis, systematically rotating into the best performing sectors.

S&P 500 Select Relative Strength Performance

10/01/2013 - 11/22/2013

The Healthcare ETF (XLV) is leading.
The Utility ETF is lagging.

Below is a Link for a short video explaining how ETFs work.

http://www.investopedia.com/video/play/understanding-etfs/

Definition of 'Exchange-Traded Fund - ETF'

A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. ETFs experience price changes throughout the day as they are bought and sold.

Investopedia explains 'Exchange-Traded Fund - ETF'

Because it trades like a stock, an ETF does not have its net asset value (NAV) calculated every day like a mutual fund does.

By owning an ETF, you get the diversification of an index fund as well as the ability to sell short, buy on margin and purchase as little as one share. Another advantage is that the expense ratios for most ETFs are lower than those of the average mutual fund. When buying and selling ETFs, you have to pay the same commission to your broker that you'd pay on any regular order.

One of the most widely known ETFs is called the Spider (SPDR), which tracks the S&P 500 index and trades under the symbol SPY.






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