What is a Style ETF?
Style ETFs are aptly named since their purpose is to emulate a specific investment strategy or style. They are created for the purpose of tracking a specific style index, but not to outperform it. Style ETFs are mostly found in the U.S. since foreign investors are less accustomed to style investing.
What are the Investment Strategies Style ETFs Track?
Style ETFs can track value or growth investment style indexes like the Russell’s, Standard and Poor’s, and Barra’s composites. Also, there are specialized style ETFs that are developed for market capitalization; small-cap, mid-cap, and large-cap. One of the newest style ETFs tracks neutral stock indexes. These indexes and funds consist of equities that are neither growth nor value securities. And while the different types of style ETFs isn’t limited, there are more to come on the investment horizon.
Why should I include Style ETFs in my portfolio?
One reason to include style ETFs in your investment strategy is because they can help you gain exposure to stocks and indexes that match your investment style. For example, if you tend to purchase growth stocks, then a style ETF that tracks growth companies, like the iShares Russell 2000 Growth (IWO), might be a good fit for your portfolio.
Another reason to consider style ETFs is if you want to diversify your portfolio by testing a different investment strategy. Maybe you invest in a lot of large-cap equities, but want to test the small-cap waters. An ETF like, iShares S&P/Barra SmallCap 600 Growth (IJT) might be a good starting point.
A third reason to include style ETFs in your investment stratagem is for hedging purposes. If your portfolio consists of a lot of value stocks and you’re worried about your downside, you can consider selling a value style ETF like the iShares S&P/Barra 500 Value (IVE) to offset some of your risk.
I am ready to look into Market ETFs. What are some of the Funds I should follow?
If you think style ETFs should be part of your portfolio, I suggest tracking some of the major style indexes and funds so you can get a feel for how they behave. When trading any investment product it is very important to conduct in-depth research before you get started. Here are some style ETFs that track major indexes. Look before you leap, and good luck.
