Abby Higgs: ETF investing is so popular because of its ease and safety – but you might feel like the amount of choices in exchange-traded funds can be overwhelming.
But there’s nothing to be overwhelmed about with ETFs. ETFs are like mutual funds that trade like stocks. Unlike mutual funds that are priced once per day after the markets close, ETFs can be traded on the major exchanges intra-day – or anytime during the trading day. The prices fluctuate just like stocks.
ETFs are also popular because of their low turnover, meaning they’re not often replaced as fiscal assets during a set time period. And they’re great when an investor is looking to diversify her portfolio. Plus, there are multiple ETFs to choose from on every major index.
Because there are so many ETFs on the market, selecting a specialization can seem difficult. But we’ve done the research for you.
7 Picks for Successful ETF Investing
ETF Investing Pick No. 1: First Trust IPOX-100 Index Fund (NYSE: FPX)
Money Morning‘s Defense and Tech Specialist Michael Robinson knows that investment bankers absolutely love to boast about successful initial public offerings (IPOs). He’s also well aware that most IPO shares are divided into mutual funds, hedge funds, high-net-worth investors, and insurance companies, which makes it particularly difficult for the average investor to get a leg up in the IPO market.
This IPO ETF can be used to sidestep Wall Street completely. It offers a good combination of tech stocks, as well as a decent entry into the broader market. “That makes it a great ‘twofer’ in which 40% of the top 20 holdings relate to tech or the life sciences,” says Robinson. This ETF consists of 100 diverse stocks, with access to various sectors, including financial, metals, heavy industry, energy, auto, and retail. Now trading at just under $54, FPX is priced cheaper than many of its portfolio holdings, including Facebook Inc. (Nasdaq: FB) and Alibaba Group Holding Ltd (NYSE: BABA), which is what makes it the most cost-effective way for the average investors to cash in on the IPO boom.
ETF Investing Pick No. 2: Renaissance IPO ETF (NYSEARCA:IPO)
This ETF was launched in October 2013 in response to investors’ demand for a safer, cheaper method to participate in IPOs. It was designed by an IPO research team to give investors exposure to the latest IPOs on the market. One-third of the fund’s holdings consist of tech stocks. The other industries included are healthcare, real estate, and energy. According to etfrends.com, on Monday, March 4, 37 members of the Bloomberg IPO Index reported year-to-date losses of 10% or more. Renaissance ETF, however, was up nearly 6%. And since this time last year, IPO’s earnings gained 8%.
ETF Investing Pick No. 3: First Trust North American Energy Infrastructure Fund (NYSE Arca: EMLP)
EMLP focuses on master limited partnerships (MLPs). MLPs are limited partnerships required to obtain 90% of their cash flow from real estate, commodities, or natural resources.
Energy MLPs are midstream companies. They transport, store, and process oil and gas rather than own it. So they stay profitable as long as there is a commodity to move. This is what makes them market-proof. The EMLP ETF holds 68 diverse stocks from the oil and energy sector. This past January, it became the first ETF to accrue over $1 billion in assets.
Ultimately, this ETF gives investors the opportunity to profit from an otherwise difficult situation – they will benefit from changes brought on by low oil prices. EMLP is up 11% over the past year.
ETF Investing Pick No. 4: First Trust NYSE Arca Biotechnology Index Fund (NYSE Arca:FBT)
This popular biotech ETF has risen a staggering 34% in the past year, and 14% so far in 2015. FBT is a broad exchange-traded fund of 31 companies. Its holdings include smaller companies like the red-hot Novavax Inc. (Nasdaq: NVAX), up 32% on the year, but it also tracks biotech as a whole. And that particular industry is already experiencing a stellar 2015.
Along with having NVAX on its roster, FBT holds Lannett Co. Inc. (NYSE: LCI), a generic drug vendor up 60.7%., as well as Biogen – which experienced an 8% surge in value in the course of one day: Friday, March 20. As Money Morning Associate Editor Jim Bach told readers recently, “FBT is not just a collection of smaller firms getting a boost from various regulatory catalysts. Its firms of all shapes and sizes are appealing to the investing public for what the sector brings to the market.”