The video is an introduction to Exchange-Traded Funds (ETFs), also known as exchange funds, led by Magnus Okeke. The presenter defines an ETF as an exchange-traded fund that can be thought of as a basket of different investments. ETFs trade like a stock, meaning they are listed in a market and you can buy them on a stock trading platform.
Contents and History of ETFs:
- An ETF’s basket can contain stocks, gold, Bitcoin, bonds, or a combination of these.
- If you buy one ETF, you gain access to many assets inside that basket.
- The concept of an ETF reportedly originated from a physicist, not a financial professional.
- ETFs have been around since the 1990s.
- They gained popularity due to low cost and diversification, as people wanted to pay for one thing and get exposure to multiple things.
- An ETF is similar to an index, where an index is a name given to two or more things grouped together. For example, the S&P 500 index is the same as the S&P 500 ETF, as both index the top 500 companies in the US.
Issuers and Trading:
- ETFs are created by investment firms, fund managers, asset managers, and sponsors.
- Common global ETF issuers include BlackRock, Vanguard, State Street (SPDR), Invesco, Fidelity, and Charles Schwab.
- After being issued, exchanges list the ETFs for people to buy. Stock exchanges act as a marketplace for trading, but they do not issue the ETFs.
- Examples of exchanges include the New York Stock Exchange, NASDAQ (which list US ETFs), and the Nigerian Exchange (NGX) (which lists Nigerian ETFs).
ETFs vs. Stocks:
- A stock represents one company, while an ETF is a basket containing one or more companies.
- ETFs reduce risk through diversification because fund managers can remove an underperforming stock from the basket and replace it with one that is doing well.
- Stocks depend on a single business, so if that company does poorly, the investment will not grow.
- ETFs have lower management costs and are easier to buy and sell due to huge liquidity and volume.
- ETFs are ideal for beginners and long-term investors because they are generally safer compared to stocks.
- Some argue that individual stocks can outperform an ETF if the company does “insanely well”, but in that case, you lose the safety provided by an ETF.
Types of ETFs and Popular Examples:
- Popular US ETFs include SPY (tracks the S&P 500), VOO (tracks the S&P 500 with low cost), QQQ (technology-focused), VTI (total US market), and EVV (large-cap exposure).
- US ETFs are popular globally due to high liquidity and volume.
- Top Nigerian ETFs by popularity and liquidity include New Gold (gold exposure) and Lotus Halal. Nigerian ETFs offer simple market access, diversification into different sectors, and the ability to buy a gold ETF to hedge against inflation.
- There are also Bitcoin ETFs (like HUDO, BITB, and I-Betas), which give exposure to Bitcoin. If you don’t want to buy Bitcoin directly, you can buy these ETFs.
- Other types of ETFs include Gold ETFs and AI and robotics ETFs (such as ARTY, the iShares Future AI and Tech ETF).
Intro to ETF in Investing and Some Nigerian ETFs
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