ETFs are an investment option that has great potential. It works like a mutual fund where the money pooled is invested according to a set portfolio, but the same units are tradable on the stock market, making it highly liquid. As a beginner in trading, ETFs could help you with stock selection and provide you with an easier investment option. But to make sure your investment is successful, you should conduct proper research and consider the current market sentiments. Below are some strategies that you could use to get desirable results.
The Passive Strategy
You can choose from two kinds of funds based on how they are managed. Actively managed funds are those that the fund managers proactively manage. They have a role in making the portfolio and keeping it valid here.
At the same time, ETFs are funds that track an index as it is. For instance, if you choose an index that tracks the Senex, the composition of Sensex and the ETF that tracks the Sensex will remain the same. Hence, there is no need for active management here. Instead, the manager’s duty is limited to changing the composition whenever the Sensex changes.
The passively managed ETFs can be used for passive investing as well. You could keep another portfolio active while keeping ETFs are a secondary one or backup plan. Since ETFs track indexes, it usually grows over a more extended period, and constant intervention is not often necessary.
The Sector Strategy
Even during the worse economic scenarios, there will be some sectors that are performing well. Even during the initial pandemic shock, the FMCG sector continued to grow as the sector’s products are essential and irreplaceable. Finding a sector that matches the current economic scenario, and investing accordingly is a strategy you could consider employing.
For instance, if you see that a particular index – let us take IT for this example, is performing well, you could invest in an IT ETF to get the best out of the growth.
Foreign ETF Strategy
As the name suggests, international ETFs invest in equity funds and indexes of foreign countries. There is no doubt that some international companies are a good investment option. But in most cases, what stops an investor from investing in them directly is the charges associated with it. For instance, if you are investing in a U.S. stock, you will have to deal with a U.S. broker, who charges the fees in dollars, which could be a considerable amount of money after conversion. This charge could eat your profits when you pick multiple stocks and pay for them each.
Instead, you could invest in an ETF fund to lower this.
ETFs also help you take advantage of the current situation as well. This is because your money will be converted to that country’s currency whenever you invest in international ETFs. By the time you sell your ETF units, if that country’s currency has gained strength, you will gain from that too. In a way, when you invest in international ETFs, you are also investing in different currencies.
Take Advantage of the Commodity Markets.
ETFs are not limited to stocks. Hence, one strategy that you can employ is investing in commodity ETFs. This will help you gain from the increased prices of commodities such as gold, silver etc.
ETFs could be a beneficial investment option, especially if you have chosen the right one. Similar to the case of mutual funds, you have a lot of options to choose from here too. Make sure you research and select one that best fits your goals.