Fundamentals |

Role Player: ETF’s in a Portfolio

Exchange-traded funds, or ETFs, come in nearly every variety an investor could want.

With a variety of funds existing for almost every major index, asset class and special industry or asset, investors can utilize ETFs to meet nearly any investment objective.

To help shed light on the multi-functionality of ETFs, we break down a few of the key roles ETFs can play in an investment portfolio and how each role can help investors achieve objectives specific to their portfolio.

ETFs Can Work to Help Achieve Specific Objectives In Any Portfolio


Different Roles for Different Needs

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Long-Term Growth

Once upon a time, someone created the very first ETF. It was designed to track the performance of the S&P 500, providing investors with long-term growth potential with ample diversification to hedge risk. Today, investors can choose from a range of products to match their long-term growth objectives and investment preferences. From broad global-market ETFs that hold hundreds, if not thousands, of securities to more concentrated ETFs that focus on a sector, specialty asset or consumer trend.

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Generating Income

From high-yield funds to bolstering risk management in your portfolio, domestic and international fixed income product options, as well as other ETFs designed to generate income, are readily available to retail investors. For those focusing investment strategies specifically toward generating income, there are even some ETFs that use advanced strategies like buying and writing options (an investment contract in which a fee is paid for the right to buy or sell shares at a future date) to help investors generate income and meet their goals.

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Capital Preservation

Certain ETFs may be useful for people looking to preserve their capital. Money market (a market for highly liquid assets generally maturing in one year or less), Treasury (debt obligation issued by the U.S. government with payments of principal and interest backed by the full faith and credit of the U.S. government) and short-term fixed income ETFs are just a few of the options investors can choose from which may help to preserve capital.

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Absolute Returns

As more investors enter the market and gain experience, the need for more sophisticated strategies has become more mainstream. An increasing number of ETFs are rising to that challenge of offering investors the benefits of alternative investments that align with differentiated strategies. These ETFs seek to provide absolute return potential in any market and can be used as core investments or complementary additions to a portfolio for most investors.

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Decrease Volatility

Volatility may be the most important factor in dictating a portfolio’s worth over time. For example, dividend-based ETFs may help mitigate volatility because dividends help boost returns during bear markets; although this does come at the risk that companies may lower or stop their dividend. Treasury and fixed income ETFs may also help lower portfolio volatility as they typically track assets that are historically more stable, both in price and consumer confidence.

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Tax Loss Harvesting

ETFs are classified a certain way by the IRS. Cool, so what does that mean? That means ETFs can be effective tools for tax-loss harvesting—using the losses in one investment to offset the gains in another for tax planning purposes. In short, because the IRS does not consider ETFs to be “substantially identical” to mutual funds, ETFs can be used to maintain exposure in a specific area of the market and may capture losses for tax purposes. Note: We are not tax advisors, those seeking tax advice should consult an independent tax advisor.

What We Learned

Key Takeaways

The wide variety of ETFs can help investors achieve almost any goal: * If a portfolio is primarily mutual funds, ETFs can help diversify by investment structure, management type, asset class, or investment strategy * If a portfolio is primarily individual stocks and bonds, ETFs can offer diversification potential in a single trade * ETFs can be used in nearly any slice of an asset allocation as they cover most countries, asset classes, currencies and commodities From simply mirroring indexes to deploying more active strategies, ETFs have evolved significantly to help investors meet their goals in innovative ways.

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Explore Our BAD ETFs

Carefully consider the investment objectives, risks, charges and expenses of The BAD Investment Company ETFs before investing. This and other information about each fund is contained in the Prospectus. Please read the prospectus carefully before investing as it explains the risks associated with investing in the ETFs.

These include risks related to investments in small and mid-capitalization companies, which may be more volatile and less liquid due to limited resources or product lines and more sensitive to economic factors. Fund investments may also be concentrated in an industry or group of industries, and the value of Fund shares may rise and fall more than more diversified funds. Investments in foreign securities involve social and political instability, market illiquidity, exchange-rate fluctuation, high volatility and limited regulation risks. Emerging markets involve different and greater risks, as they are smaller, less liquid and more volatile than more developed countries. Depositary Receipts involve risks similar to those associated with investments in foreign securities, but may not provide a return that corresponds precisely with that of the underlying shares. All investing involves risk, including possible loss of principal. Please see the prospectus for specific risks related to each fund.

BAD is distributed by Foreside Fund Services, LLC.