How ETFs Can Help Diversify Your Portfolio and Lessen the Impact in Volatile Markets

Exchange traded funds or ETF for short, have exploded in popularity in the last few years. They continue to grow and many people are implementing them in place of traditional mutual funds. An ETF is similar to a mutual fund, but the most noticeable difference is that it is traded on the stock exchanged, allowing investors and traders to enter and exit with ease. ETF products are created to follow a specific index, market sector, and even a commodity or currency. If there is a market you want exposure too, then you will likely find an exchanged traded fund.

Published over a year ago
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Reviewed by Vlad Skutelnik

Taking a dive into the ETF space, let us look at the ticker SPY, which is arguably one of the most notable and it tracks the S&P 500 index. SPDR is the company that created this product and is traded heavily on a daily basis. Evaluating an ETF can be unique because each product warrants different filters.

Typically, a company's financial statements are the reports that show the financial position of the company. There are three main documents that fall into the category of financial statements. These documents include SPDR SP income statement, its balance sheet, and the statement of cash flows. Potential SPDR SP investors and stakeholders use financial statements to determine how well the company is positioned to perform in the future. Although SPDR SP investors may use each financial statement separately, they are all related. The changes in SPDR SP's assets and liabilities, for example, are also reflected in the revenues and expenses that we see on SPDR SP's income statement, which results in the company's gains or losses. Cash flows can provide more information regarding cash listed on a balance sheet, but not equivalent to net income shown on the income statement. Please read more on our technical analysis and fundamental analysis pages.
The goal of SPDR SP fundamental analysis is to do accurate financial forecasts. There are several possible objectives to fundamental analysis, such as projecting of SPDR SP performance into the future periods or doing a reasonable stock valuation. The intrinsic value of SPDR SP shares is the value that is considered the true value of the share. If the intrinsic value of SPDR is higher than its market price, buying is generally recommended. If it is equal to the market price, it is recommended to hold; and if it is less than the market price, then one should sell all shares SPDR SP. Please read more on our fundamental analysis page.

And What about dividends?

A dividend is the distribution of a portion of SPDR SP earnings, decided and managed by the company's board of directors and paid to a class of its shareholders. Note, announcements of dividend payouts are generally accompanied by a proportional increase or decrease in a company's stock price. SPDR SP dividend payments follow a chronological order of events, and the associated dates are important to determine the shareholders who qualify for receiving the dividend payment. SPDR one year expected dividend income is about USD1.51 per share.
Investing in stocks that pay dividends, such as etf of SPDR SP 500, is one of many strategies that are good for long-term investments. Ex-dividend dates are significant because investors in SPDR SP must own a stock before its ex-dividend date to receive its next dividend.
This type of analysis is very useful when you want to generate a past dividend schedule and payout information for SPDR SP. Then that information in the form of graph and calendar can be used to fully explain how Du Pont dividends can provide a real clue to its valuation.

Going after SPDR Financials

Filtering the SPY, first you want to see how the liquidity is. This goes for most products, but you want to ensure you can enter and exit your position as you please. Some ETF’s may not be as easy to enter and exit as it is not heavily traded or it follows a small sector. With SPY, you should experience no issues entering and exiting a position.  

Next, for something that follows a large index similar to a mutual fund, you want to examine the expense ratio. This pertains to long-term investors because expense ratios can add up to be a lot if this is not monitored. Some ETF products may be expensive and not worth the investment. Comparing the SPY, you may find that a mutual fund can fulfill the same needs but at a lower cost. Obviously if you are looking to swing trade, then you would just compare it against other ETF products.  

Then you want to look at the holdings and beta. If you are wanting to track an index, you should aim for a beta of 1. Now, the significance of looking at the holdings is to see if everything is lined up as it should be and that you agree with the objective of the ETF. It wouldn’t make sense to invest in an ETF that has a large holdings in telecommunications if it is supposed to be tracking a broader index.  

Exchange traded funds are a wonderful way to incorporate broader exposure to the market. It also offers an alternative to mutual funds for someone who wants to keep their funds a little more liquid. Also, having the ability to gain exposure to markets that may be smaller is a great way to diversify. Go ahead and check out SPY using the tools here at MacroAxis and see if this is potential addition to your list of investments

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Editorial Staff

This story should be regarded as informational only and should not be considered a solicitation to sell or buy any financial products. Macroaxis does not express any opinion as to the present or future value of any investments referred to in this post. This post may not be reproduced without the consent of Macroaxis LLC. Macroaxis LLC and Nathan Young do not own shares of SPDR SP 500. Please refer to our Terms of Use for any information regarding our disclosure principles.

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