The Best Mutual Fund Family - Exchange Traded Funds


In the last installment of our 5 day course on Success Investing in Mutual Funds, we highlighted the Fidelity family of funds as being one of the best, giving us the tools to succeed in our investment goals.
There are of course other fund families that can enable you to succeed in your goals as well. However, we'd like to highlight one other option that has become quite popular that gives you many of the same tools to succeed. It's the family of funds that isn't a family, Exchange Traded Funds, or ETF's.

There are well over 100 of them in existence today, with more being added almost daily. Sponsored by major financial institutions like Barclay, Standard and Poors, Vanguard, they are baskets of stocks, just like mutual funds, but they are traded on the stock exchanges just like regular stocks. They can be bought and sold through almost any brokerage account, including IRA's.

They are structured like mutual funds, in that they are tailored to represent a specific investment goal.  For example, there are over two dozen different countries or regions represented by ETF's.  More than a dozen specific industry sectors are represented, as well as the major market indices like the S&P 500, the NASDAQ, and the Russell 2000. There are even major commodities like gold and silver, and you can do the equivalent of selling short the major indices by buying an ETF as well.

ETF's in general are passively managed, which means that it will mirror an index, so it simply buys and holds the stocks in the correct proportions to mirror that index. Since there is no "management" of the investment, and the turnover tends to be fairly low, ETF's generally have a very low cost fee structure.

Limitations of ETF's: Since they are relatively new, they sometimes trade in low volumes, making it important to select the right ETF's for your use. In addition, you have to pay commissions on your trades, so it is important to limit trading to a reasonable level. Also, many of them are fairly new, having been introduced since the last bear market of 2000 - 2002, and so their track record in any major market downturn has yet to be tested.

In summary, Exchange Traded Funds have become a very attractive alternative to investing in mutual funds, and many investors are looking for ways to profit from them. You aren't tied to any specific fund family, and can access them through almost any brokerage account.

Because of the increased investor interest, we have recently introduced our Fundztrader ETF trading system. To start we have narrowed the funds we use to those with more than 3 years of trading history, and that trade more than 50,000 shares a day, so the system should trade well for a large number of subscribers.

This system is quite similar to the Fidelity Equity system, using a ranking metric based on recent price trends and volatility to select 4 funds to hold at any one time. In order to better manage the drawdowns of this system, it trades every 2 months instead of every 3 months.


Since we have just started tracking it, there is not much of a long term record, but the back tested results are even better than the Fidelity systems that we have been trading over the last few years. You can look at the backtested returns at:

http://fundztrader.com/performance.php

If you'd like more information on the Fundztrader ETF system, including signing up for access to the trades and as well as the rankings of all the ETF's that we track go to:

http://fundztrader.com/etf_system.html