ETFs for the Long Run: What They Are, How They Work, and Simple Strategies for Successful Long-Term Investing

CHAPTER 8

The ETFs That Aren’t ETFs

ETPs, ETVs, and ETNs

 

If exchange-traded funds were merely a less expensive, more tax-efficient way to invest in stocks and bonds, they would be worthy of all the praise bestowed upon them. But they are so much more.

Exchange-traded funds have changed the face of investing for the individual investor. Little did the inventors of the ETF realize that when they applied the warehouse-receipt concept to stocks and funds that this would spark a revolution in the world of asset management. This revolution expanded the universe of investment options for small, retail, individual investors. The flexibility of the ETF structure broke down barriers across nontraditional asset classes such as commodities and currencies.

Commodities and currencies are considered good assets for diversifying a portfolio because they have little if any correlation to stocks and bonds. Correlation means the degree to which asset classes move independently of each other. So, these assets can move up when stocks move down.

Of course, it’s worth noting that people didn’t want to invest in commodities just because they were there. During the first decade of the twenty-first century, as ETFs gained a wider audience, there occurred simultaneously a huge bull market in commodities: gold, silver, oil, copper, uranium, water, and many agricultural products. Retail-investor demand to get into commodities was huge, but it was difficult. The most common way to trade commodities and currencies ...