What are the different types of ETF's?
Index ETF
An index ETF is designed to track the performance of a specific market index, such as a broad market, sector, or asset class index.
Index ETFs generally follow a passive investment approach and seek to replicate, rather than outperform, the index.
Important Note
Tracking error may cause an ETF’s performance to differ from that of its underlying index.
Sector ETF
A sector ETF focuses on companies within a specific industry or economic sector, such as technology, energy, healthcare, or financial services.
Sector ETFs:
- Provide targeted exposure
- May experience higher volatility than broadly diversified funds
- Are designed to achieve stated objectives on a daily basis
- May produce returns that differ significantly from the index over longer holding periods
- Reset daily
- Are affected by compounding over time
Leveraged ETF
A leveraged ETF uses financial derivatives and borrowing to seek a multiple of the daily return of an underlying index.
Leveraged ETFs:
Risk Disclosure
Leveraged ETFs involve heightened risk, including amplified losses, compounding effects, and volatility drag. They are generally intended for short-term trading and may not be suitable for long-term investors.
Inverse ETF
An inverse ETF seeks to provide returns that are opposite the daily performance of a specified index.
Inverse ETFs:
- Reset daily
- Are affected by compounding over time