Investment Education Course 02: What is a US Stock ETF?
ETFs (Exchange Traded Funds) listed on the US stock market are a type of fund that is traded like stocks. Unlike stocks, ETFs are like an investment portfolio that may contain numerous stocks, bonds, or other assets, with the goal of diversifying investments to spread risk
What is a US Stock ETF? Introduction to US Stock ETFs
A US Stock ETF (Exchange Traded Fund) is a fund traded on US stock exchanges. The characteristic of an ETF is that it can be bought and sold on the exchange, just like a stock.
In Chinese, many people refer to ETFs as index stock funds because they securitize the performance of indices. However, some ETFs do not track a specific index but are actively managed by fund managers.
Unlike stocks, an ETF is like a portfolio that may contain numerous stocks, bonds, or other assets. Its purpose is to closely track the performance of a specific index or asset, allowing investors to easily track multiple market indices (not limited to the US) and various commodities, achieving diversified investments to spread risk.
The origin of US Stock ETFs can be traced back to the early 1990s when State Street Corporation launched the first ETF in the US in 1993 to track the S&P 500 index. Since then, the ETF market has rapidly expanded and has become one of the most popular investment products globally.
Why Invest in US Stock ETFs?
Advantages of US Stock ETFs:
Diversified Investment: Since they include many different types of assets, investors can easily achieve portfolio diversification, reducing the risk and trading costs of a single asset.
High Transparency: They provide good liquidity and transparency, making it easy to track changes in asset prices.
Low Management Costs: ETFs are usually passively managed (tracking indices), avoiding cumbersome stock selection and rebalancing processes, saving investment time.
Flexible Trading: With better liquidity, investors can buy and sell at any time during trading hours, quickly adjusting their portfolios based on market changes.
Disadvantages of US Stock ETFs:
Tracking Error: Although most ETFs attempt to accurately track indices, factors such as costs, liquidity, and reinvestment may cause the ETF's performance to differ slightly from its underlying index.
Specific Market Risks: Some ETFs that specialize in specific industries or national markets (such as emerging market ETFs or technology stock ETFs) carry higher risks. Additionally, if systemic risks occur (such as financial crises or large-scale market adjustments), the prices of ETFs may still drop significantly.
Potential Underperformance Compared to Active Strategies: The performance of ETFs can only reflect the overall market average performance of the index, while actively selecting stocks may allow investors to achieve returns above the market average through various evaluation methods, timely adjustments to holdings, and the use of leverage.
The next article will introduce the types of US Stock ETFs, so stay tuned.
In the previous article, we introduced the two hottest ETFs in the current US stock market: "Investment Education Course 01: What are YINN and YANG?," click to view details if interested