ETFs can be a great addition to a portfolio, as they can add diversity without complications. The first ETF was created in 1993 and in just over 20 years, there are over 1,600 of these products available for investors. Today there is over $1 trillion in ETFs as more and more investors are choosing these funds over mutual funds.
Investing in ETFs
An ETF, or Exchange-Traded Fund, is a bundle of securities that is similar to a mutual fund, but trades on exchanges like a stock. Investors use ETFs to add diversification to their portfolio by adding exposure to a major index or by adding other types of exposure like foreign equities or real estate.
Investing in Industries
ETFs are great for investors that seek exposure to a specific industry, but do not want to invest in an individual company. For example, an investor who is interested in companies like Apple (AAPL ), Microsoft (MSFT ) and Google (GOOG) may not want to invest directly in these companies, but they have the option of buying an ETF like the iShares U.S. Technology ETF (IYW ) – an ETF that has all three companies as top holdings.
| Industry ETF | View On | Top Sector Holdings | Top Company Holdings |
|---|---|---|---|
| iShares U.S. Technology ETF (IYW ) | Dividend.com / ETFdb.com | Technology | (AAPL ), (MSFT ), (IBM ) |
| iShares U.S. Healthcare ETF (IYH ) | Dividend.com / ETFdb.com | Healthcare | (JNJ ), (PFE ), (MRK ) |
| Vanguard Financials ETF (VFH ) | Dividend.com / ETFdb.com | Financial Services | (WFC ), (JPM ), (BAC ) |
Investing in Foreign Stocks
ETFs are also gaining international exposure. Investing in foreign stocks can be a great way to get potential growth exposure for your portfolio, but it can also be very complicated. The easiest way for an American investor to invest in foreign securities is to to buy an American Depository Receipt or an ETF. While buying an ADR can be a good option for an investor, ETFs can allow investors to gain even more diversification. Investors have the choice of buying an ETF with exposure to a specific country, or they can choose to invest in a specific type of market, such as an emerging markets ETF like Emerging Markets ETF (VWO ).
| Foreign Stock ETF | View On | Top Sector Holdings | Top Country Exposure |
|---|---|---|---|
| Japan Hedged Equity Fund (DXJ ) | Dividend.com / ETFdb.com | Consumer Cyclical | Japan |
| iShares MSCI China 25 Index Fund (FXI ) | Dividend.com / ETFdb.com | Financial Services | China |
| Vanguard Emerging Markets ETF (VWO ) | Dividend.com / ETFdb.com | Financial Services | China, Taiwan, Brazil |
Investing in Bonds
Bond exposure is important for many investors, but investing in bonds can often require a large amount of money. By investing in a bond ETF, investors are able to gain exposure to the type of bond of their choice – whether it be municipal bonds or bonds from a specific state.
| Bond ETF | View On | Top Bond Holding | Top Maturity Range |
|---|---|---|---|
| Enhanced Short Maturity Strategy Fund (MINT ) | Dividend.com / ETFdb.com | Corporate Bond | 1-3 Years |
| iShares iBoxx Investment Grade Corporate Bond ETF (LQD ) | Dividend.com / ETFdb.com | Corporate Bond | 3-5 Years |
| iShares National AMT-Free Muni Bond ETF (MUB ) | Dividend.com / ETFdb.com | U.S. Municipal Tax Advantaged | 20-30 Years |
Investing in Currency
Investing in currency is a great way to add diversity to your portfolio, and currency ETFs can be a simple and effective way to do this. There are several ETFs that offer exposure to different currencies, including the dollar, euro, yuan, yen and pound.
| Currency ETF | View On | Currency |
|---|---|---|
| CurrencyShares Australian Dollar Trust (FXA ) | Dividend.com / ETFdb.com | Australian Dollar |
| CurrencyShares Canadian Dollar Trust (FXC ) | Dividend.com / ETFdb.com | Canadian Dollar |
| CurrencyShares Euro Currency Trust (FXE ) | Dividend.com / ETFdb.com | Euro |
Investing in Commodities
ETFs are also very popular options for investors seeking exposure to commodities. By investing in a commodity ETF, investors can add exposure to agriculture, metals, precious metals, oil & gas, or other commodities.
| Commodity ETF | View On | Top Holdings |
|---|---|---|
| PowerShares DB Commodity Index Tracking Fund | ETFdb.com | Brent Crude, Heating Oil, Light Crude |
| Dow Jones-UBS Commodity Index | ETFdb.com | Natural Gas, Crude Oil, Gold |
| Continuous Commodity Index Fund | ETFdb.com | Sugar, Wheat, Corn |
ETFs Vs. Mutual Funds
Buying and Selling
Both ETFs and mutual funds can be bought and sold with a brokerage account. The primary difference is that ETFs can be bought and sold throughout the trading day as their price fluctuates, while mutual fund prices are updated once per day after the market closes.
Expenses
ETFs are typically cheaper to purchase than mutual funds. In some cases, investors can purchase ETFs or mutual funds commission-free through certain brokerages. ETFs are also much more tax-efficient than mutual funds.
See 5 Charts to Put Mutual Fund Expenses in Perspective.
Minimum Investment
While there is no minimum investment for purchasing an ETF, many mutual funds have a minimum investment, which can be at least $1000. For investors with limited funds, an ETF may be the better choice to make.
Dividend ETFs
For dividend investors that are interested in purchasing an ETF, Dividend ETFs can often be a good choice. Below is a list of dividend-focused ETFs.
| Dividend ETF | View On | Top Company Holdings |
|---|---|---|
| Vanguard Dividend Appreciation ETF (VIG ) | Dividend.com / ETFdb.com | (JNJ ), (KO ), (XOM ) |
| iShares Dow Jones Select Dividend Index Fund (DVY ) | Dividend.com / ETFdb.com | (LMT ), (ETR ), (CVX ) |
| SPDR S&P Dividend ETF (SDY ) | Dividend.com / ETFdb.com | (HCP ), (T ), (ED ) |
| High Dividend Yield ETF (VYM ) | Dividend.com / ETFdb.com | (AAPL ), (XOM ), (MSFT ) |
| iShares International Select Dividend ETF (IDV ) | Dividend.com / ETFdb.com | N/A |
| iShares High Dividend ETF (HDV ) | Dividend.com / ETFdb.com | (T ), (CVX ), (JNJ ) |
| Emerging Markets Equity Income Fund (DEM ) | Dividend.com / ETFdb.com | N/A |
| U.S. Dividend Equity ETF (SCHD ) | Dividend.com / ETFdb.com | (VZ ), (JNJ ), (PG ) |
| Value Line Dividend Index Fund (FVD ) | Dividend.com / ETFdb.com | (LLL ), (TEVA ), (PAYX ) |
| WisdomTree LargeCap Dividend Fund (DLN ) | Dividend.com / ETFdb.com | (AAPL ), (XOM ), (MSFT ) |
| WisdomTree Equity Income Fund (DHS ) | Dividend.com / ETFdb.com | (MSFT ), (T ), (JNJ ) |
| PowerShares International Dividend Achievers (PID ) | Dividend.com / ETFdb.com | (NMM ), (VOD ), (TGP ) |
| WisdomTree Dividend Top 100 Fund (DTN ) | Dividend.com / ETFdb.com | (CTL ), (ETR ), (FE ) |
| WisdomTree Dividend MidCap Dividend Fund (DON ) | Dividend.com / ETFdb.com | (WIN ), (FTR ), (AEE ) |
The Bottom Line
ETFs can be a great option for dividend investors who are seeking additional diversification. These funds can also be a great way to add exposure to great dividend stocks without buying the stocks individually. For more information on ETFs click here.
