The Optimism Behind ETFs

As the old adage goes, there’s a time and a place for everything.  And in the world of finance and investments it also rings true.  Indeed, this is especially the case for Exchange Traded Funds (ETFs) that have over the years not gotten the good rep they deserve. Furthermore, in a recent white paper entitled Are Concerns About Leveraged ETFs Overblown, the case was recently made that concerns are exaggerated and that in fact there are many benefits to leveraged ETFs such as capital flows which limit ETF rebalancing demand and thus “mitigate the potential for ETFs to amplify volatility.”
So what is the truth?  When looking into ETF risks versus gains, it is important to investigate each individual ETF to see which one will fit best in your portfolio.  There are so many different types available these days. For example, one niche ETF is the HealthShares Autoimmune-Inflammation ETF, that tracks an index of American and foreign publicly-traded companies involved in the clinical research and development of treatments for various diseases like arthritis, multiple sclerosis and psoriasis.
Those who prefer the ETFs that center around current investment trends should look at the variety of those based on alternative energy sources like wind or solar power.  Alternative energy sources are becoming more attractive as oil prices gradually increase from the 2008 lows.
When it comes to leveraged ETFs, while there are risks, there are also many potential rewards. Comprising around 2.5 percent of the $2.5 trillion ETF global market, these are fiscally engineered with “leverage” that come from debt and derivative and can supercharge returns of their underlying benchmarks.  In addition, the benefit of using leveraged ETFs is that they represent a self-diversified index or pool of stock, which means market risk can be reduced.

Vis-à-vis inverse ETFs one is able to easily benefit from falling asset prices.  And these ETFs are really good for day trading since many are based on the daily inverse price performance of an underlying index.  Hence for those looking for short-term trading opportunities, inverse ETFs are a good option.