Exchange Traded Funds (ETFs) The Hottest New Investment with Allen Holdsworth May 2, 2013

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1 Welcome Housekeeping Access all recordings and handouts of all sessions from the resources page thru 7/31/ Disclaimer All fund references are meant to be used for educational purposes. No recommendation for purchase or sale is intended or implied. Everyone should conduct their own analysis before making an investment decision. 3 1

2 Allen Holdsworth Lives in Western Illinois President BIVA Board Director Illowa Chapter MAD Investment Club Teaches many classes in person and online Broker/Financial Planner for over 7yrs. Teaches Personal Investing class at local Community College Retired 4 BetterInvesting Biography Non-profit organization founded in 1951 in Detroit, Michigan. By ordinary people who wanted financial security for themselves and their families, and found success by following commonsense investing principles. Our mission is to create successful lifelong investors 5 BetterInvesting Investment Principles 1. Invest Regularly 2. Reinvest all dividends and earnings 3. Buy quality growth stocks and equity mutual funds 4. Diversify These principles apply to both stock and mutual fund investing 6 2

3 Exchange Traded Funds (ETFs) Are like mutual funds Invest in many companies Inexpensive way to diversify 7 Features of ETFs Index mutual funds Passive management Trade like stocks Low expense ratios 8 Features of ETFs Can do everything with them that you can with a share of stock Pay commissions to buy and sell 9 3

4 Expense Ratios ishares Funds S&P 500 Fund IVV -.09% S&P Midcap % 10 Expense Ratios All Track the S&P 500 Fund Name Fee Exp Ratio GRAMX 5.75% load.52% PLSAX 1.5% load.79% AAFPX No load.60% SWPPX No load.09% IVV ETF ETF.09% SPY ETF.1% 11 Number and Types of ETFs Currently over 1400 ETFs Over $1 ½ trillion invested Follow every index and cap size Sector specific funds 12 4

5 Number and Types of ETFs Country specific funds Commodities Short selling ETFs 13 History of ETFs SPDR AMEX Midcap SPDR AMEX 14 ETF Companies Barclays-iShares State Street-StreetTracks-Spiders Vanguard-Vipers Powershares Bank of NY Rydex Morningstar 15 5

6 ETF Companies Fidelity Merrill Lynch WisdomTree 16 ETF-Trading Volume Check the average shares traded per day High-128 million a day Low-less than 1000 shares a day Some may not trade at all in a day 17 ETF-Trading Volume Be careful of thinly traded ETFs Do not be the market mover Wide bid/ask spread 18 6

7 Sectors ETFs Basic materials Energy sector Healthcare sector Semiconductor sector 19 Sectors ETFs Regional bank sector Biotechnology sector Medical devices sector Many more 20 Country Specific ETFs China Australia Belgium Brazil Hong Kong Malaysia Mexico Netherlands Many more 21 7

8 Barclays-iShares Over 135 funds Over $200 Billion in assets 22 How are Mutual Funds Better More flexibility Dollar cost average More ways to take money out Rebalance with no fees 23 Dividends ETFs must pay out at least 98% of dividends Dividends paid to the stockholder Domestic ETFs pay quarterly International ETFs pay twice a year Domestic fixed income ETFs pay monthly 24 8

9 Capital Gains ETFs have little or no capital gains If they have any, they are paid to the shareholder 25 Tracking ETFs on the Internet BI Mutual Fund Tools 26 Exchange Traded Funds Many discount brokerages offer commission-free trades on a number of exchange traded funds Check avg. number of shares traded 27 9

10 ETFs I have used JNK 7.2% junk bonds PFF 6.2% pref. stock PGF 6.8% pref. stock SPY 1.8% S&P 500 EWA 4.5% Australia EIS 3.4% Israel 28 Newest ETF Style Actively managed ETF!?!? Isn t that like a regular mutual fund? 29 Exchange Traded Notes Debt Instruments Commodities Stay away from these! 30 10

11 Examples 31 Examples 32 When Might Clubs Use an ETF Could invest in small-cap and micro-cap stocks Invest in foreign countries Invest in niche markets 33 11

12 When Would Individuals Use Them Low cost way to diversify Can use in IRA s and ROTH accounts Buy in a discount account Reinvest all dividends and capital gains 34 Summary of ETFs Over 1400 funds More being added all the time Track every index, industry and country Low expenses Tax efficient 35 Resources for Mutual Fund Investors BetterInvesting: Mutual fund education and resources Securities and Exchange Commission FINRA: Mutual Fund Informer: Morningstar: Lipper: Kiplinger s Fund Finder:

13 Tracking ETFs on the Internet BI Mutual Fund Tools 37 BetterInvesting Mutual Fund Resources These resources are available at no charge 38 Contact Information Allen Holdsworth and Thank You! 39 13