With a variety of Exchange Traded Funds available, it has never been easier to invest in the stock market. But understanding the different types of ETFs is key to enhancing your portfolio strategy.
ETFs are the new black in the investing landscape, having become a staple part of modern investment strategies. These baskets of securities can be traded like an individual stock, making them a go-to option for investors seeking efficient, low-cost and flexible access to the market.
But, with options spanning crypto, leverage, themed and index funds, Webull Australia CEO Rob Talevski says to fully capitalise on this streamlined approach to investing, it’s important for investors to create a balanced and personalised portfolio. “Whether you’re a seasoned investor or learning, one thing that you’ll come to understand, is you don’t put all your eggs in one basket,” Talevski says.
“ETFs allow for very easy diversification, and you can do it at a lower entry cost than if you did it another way.” Talevski says understanding the different types of ETFs can empower you to develop a sound risk profile while allowing for strategic risk-taking where you identify opportunities that appeal to you.
Popular types of ETFs
Index
Index ETFs track the performance of a particular market index, like the S&P 500 or the ASX 200. “Markets have cycles – they go up and down – but if you look over a 10-year time span, there’s always some sort of growth,” Talevski explains. “Having an Index ETF gives you that broad exposure to the whole index.
Having index exposure is a sound approach for long-term investors who want steady growth over time, and Talevski explains, buying an Index ETF is easier and more cost-effective than trying to emulate it yourself. “If you’re trying to replicate the ASX 200 it’s not only time consuming – that’s a lot of transactions and transactional costs,” he says.
Themed
Themed ETFs focus on specific sectors or trends, such as AI, clean energy, technology, or healthcare. “A themed ETF allows you to get exposure to a hot investment idea so you can align your portfolio with industries you believe in or expect to grow,” Talevski explains. These funds provide targeted exposure and are ideal for investors looking to capitalise on specific long-term trends.
Crypto
These ETFs give investors exposure to cryptocurrencies without having to directly hold digital assets like Bitcoin. While crypto ETFs offer the potential for high rewards, they represent greater volatility, and Talevski explains, they’re not that easy for the average trader to access directly through a crypto provider. “Buying an ETF crypto token can take the regulatory complexities and custodial considerations out of purchasing Bitcoin through a crypto provider,” he says.
Leverage
Typically better suited for more experienced investors looking for short-term opportunities, leveraged ETFs use financial derivatives and debt to multiply the returns of the underlying assets, providing the chance for amplified gains.
However, with higher rewards come higher risks, as losses can also be magnified. Talevski says investors looking to boost their return may appreciate the simplicity of taking a leveraged ETF as opposed to trading options, which require more knowledge and understanding of complex strategies.
Getting the right mix of ETFs for your portfolio
Selecting the right ETFs allows you to personalise your portfolio based on your financial objectives and risk levels, Talevski explains. “If you’re after long-term, stable growth, index ETFs give you that broad diversification across the market,” he says.
“But then you might want more concentrated exposure, so you might opt for a themed ETF, or a leveraged ETF that’s based on a single stock if you’ve got a strong conviction that say Tesla is going through the moon and you want greater exposure to it.
“Then perhaps you hear about Bitcoin, and you don’t want to miss out, but you don’t want to throw a lot at it, so a crypto ETF gives you the ability to be exposed and see what happens.” The Webull app makes it easy for investors to learn about market trends and search for ETFs based on certain parameters.
“The ETF Corner allows you to narrow down specific markets and sectors and sort through themes, and we have a strong company research section where you’ll get analyst ratings around particular security types including ETFs, so you can understand what you’re buying and selling,” Talevski says.
Once you have your investments in place, Talevski recommends keeping at least one hand on the wheel in terms of how your portfolio is tracking. “Have an idea of what your risk tolerance is and keep an eye on what the market is doing broadly so you can react if you need to,” he says.
Start trading index, themed, or crypto ETFs today! Download the Webull App for free.
This article was developed in collaboration with Webull, an advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.
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