Profits and Prophets

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By Art Garcia

Of Spiders, Vipers and Indexes
Have you “ETF-ed” yet? If not, you’re missing one of the hottest investment vehicles to tool down Wall Street in years. By most estimates, there are nearly 200 exchange-traded funds, with new versions debuting regularly.
     ETFs are not newcomers. They’ve been around since the early 1990s but began making a splash in the last several years. Increasingly, average investors are ?nding them attractive, as are money managers and investment advisers.
     Some believe these simple trading vehicles carrying strange names — Spiders, Vipers, Diamonds, iShare — will continue pulling investment dollars away from long-dominant mutual funds. Each Spider (launched in 1993 as SPDR: Standard & Poor’s Depositary Receipts) represents the stocks in the S&P 500, allowing investors to capture its entirety in a single share.
     ETFs, essentially well-de?ned “baskets” of stocks, are inexpensive to own and, unlike mutual funds (but just like regular stocks), trade all day on major stock exchanges. They’re similar to mutual funds in that each share gives investors a piece of dozens, even hundreds or thousands, of companies.

Web of Possibilities
Wide-index ETFs make it easy to buy the whole market, the smallest or biggest companies, or take positions in entire industries rather than in single stocks. The growing number of ETFs makes it easy to build asset diversity at a lower cost relative to mutual-fund investing.
Continued...

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