Voiture 206

Looking at all the exchange traded funds that have come on the market, it’s amazing. An ETF that always intrigues me is the MLP based Natural Gas ETF, it has routinely double and collapsed in the past decade creating huge trading opportunities. Not all ETFs are created equal though, there are some that really stink. Many of the inverse and leveraged ETFs have severely underperformed expectations. The derivatives of derivatives are the worst, ETFs based on futures contracts can dramatically under-perform. The amateur investor can’t possibly make consistent money with these products. Who are regulators trying to protect by not putting restrictions on some of these things. Now back to the good stuff, there really are some excellent benefits to a good ETF. Another thing to stay away from is futures based Oil ETF funds, contango can kill them, you are much better off in stock or physical commodity based ones that avoid leverage. If you look at most oil stock ETFs (XLE, XOP, OIH) and compare it to a futures based Oil ETF, over the long haul the stocks always beat the futures. So if oil investing is appealing to you the stock based funds are the way to go. In general, if an exchange traded fund stores the actual commodity or stocks based on that commodity you are on the right track. For stock index based investments it’s best to follow the same rule of thumb. Insist on investing in the actual stocks that you would purchase if you were to buy the underlying index, in my humble opinion you will consistently outperform the funds that rely on futures. The popular Nasdaq 100 ETF – QQQ – has done a great job of tracking the Nasdaq 100 since it’s inception. This is just one of many good options for investing, doing just a little due diligence will show you how each has performed. I always go look at historical charts in order to see how it’s performed relative to it’s benchmark. In my opinion it’s the only way to really judge whether it’s something I should invest in. If it outperforms at times and under performs at time, I want to know that prior to investing. The goal is to find instruments that can match the index minus fees and expenses. This is why it’s important to pay attention to management fees when looking at potential holdings. Frequent trading costs are another reason the 2x or 3x funds tend to under perform as they have to re-calibrate every night at the close. By focusing on plain vanilla ETFs that minimize their expenses, avoid leveraging and have good past performance you can win at the investment game!