Morningstar ETF


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Morningstar ETF

  1. 1. Morningstar:Exchange Traded FundsWhat you need to know to make the rightchoices in ETF’s
  2. 2. Morningstar:Exchange Traded Funds Our library subscription allows access to a large list of exchange traded funds. These are a relatively new investment vehicle and are different from stocks, mutual funds and other tradable instruments.
  3. 3. Morningstar:Exchange Trade A exchanged traded fund “is an investment product representing a basket of securities that track an index such as the Standard & Poors 500 Index. ETFs, which are available to individual investors only through brokers and advisers, trade like stocks on an exchange.” (Bloomburg, 2012)
  4. 4. Morningstar:Exchange Traded Funds ETF’s are priced though out the day unlike mutual funds which are only priced at the end of the day. ETF’s have a portfolio that tracks the gains or losses of a particular index or commodity. Depending upon the type, the investor may invest in special indexing funds.
  5. 5. Morningstar:Exchange Traded Funds Depending upon the amount of risk that a investor wishes to accept, there are inverse funds that allow for making or loosing 2x to 3x what the overlying market does. This means that we can buy a fund that will allow us to make or loose money no matter what the overall market does.
  6. 6. Morningstar:Exchange Traded Funds If we think the market is going up we buy a fund that will pay us 2 to 3x what the market goes up. If the market goes up 1% we get 2 to 3%. The downside is if the market goes in the opposite direction that we invest, we loose the 2 to 3%.
  7. 7. Morningstar:Exchange Traded Funds We can search for the type of ETF that we want by using the standard search features We can search by: Trading Volume, Analyst Reports, and Quickrank Other data elements are: Category of fund, Investing Style, Percent returns for YTD, 1 Month, 3 Month. 1Year and 3 Year % of return are also included
  8. 8. Morningstar:Exchange Traded Funds If we look at the analyst reports for a particular ETF, we can sort the list by: Category, Style, YTD % Return, and the Date of the Analysiss Report When we look at the report we will see: A lengthy discussion of the fund, its investing philosophy along with..
  9. 9. Morningstar:Exchange Traded Funds the current price, estimate of fair value, Price to consider buying, value rating, and selling price. Not all of this information will be available for each ETF.
  10. 10. Morningstar:Exchange Traded Funds Other things to keep in mind: Screening results will change depending upon the variables selected. For Example, the total number of ETF’s available, is 1697. If we search for a YTD return of 20% or more, we get a list of 98 funds. Notice if we look at the funds that are shown, the majority of them are..
  11. 11. Morningstar:Exchange Traded Funds Considered high risk due to the goal of returning 2x to 3x the rate of return. This raises the risk of loss if the market turns against the investor by the same multiplier as we discussed earlier. We can begin to judge our risk by looking at the Morningstar valuation quickrank. We can get a sense of how over-
  12. 12. Morningstar:Exchange Traded Funds Many of the fund descriptions give the Morningstar opinion on how over or under valued a ETF may be. If the ETF is overvalued, then it may be due to both its risk and the fact that it is overbought. In the same vane, if the ETF is undervalued the worth of its underlying securities and the fact it may be oversold may make it worth a second look.
  13. 13. Morningstar:Exchange Traded Funds There are some other very good reasons as to why the investor should look at ETF’s. Morningstar states that “We think that they are excellent options for lump-sum investments that you plan to hold for a long time.” ETF’s also allow investors to adjust their investing philosophy by diversifying into other market segments that they have never looked at before.
  14. 14. Morningstar:Exchange Traded Funds Depending on how you invest in the market, you may need to get into and out of a particular stock. One good way, if one had to sell a particular stock but wanted to still invest in that particular market segment would be to invest in a ETF that covers that market. Naturally, you would have consulted with your financial advisor to see if this strategy would work for you before buying the ETF.
  15. 15. Morningstar:Exchange Traded Funds ETF’s come in all sizes and shapes of markets and risks. There are both tax benefits and risks. You should carefully investigate the ETF before you invest in it. The value of ETF’s shifts much more quickly than mutual funds. These are not buy and forget investments.