I’m a realist. Not everyone can spend 80 hours a week looking under the hood and kicking the tires of loads of individual stocks like I do. I’ve always said that picking good stocks is a labor of love, but if you don’t have the time to do, maybe your best investment options lay elsewhere.
One investment option that is growing like the outfield vines in Wrigley Field is the exchange traded fund, or ETF. What are ETFs? Simply, a basket of stocks that can be sector, theme, or even country oriented. Now, I have been critical of ETFs - why own a basket of stocks when you can pick out the good, individual stocks, and scuttle the bad ones? But if you don’t have a lot of time and you just want an average return, then an ETF could be the best move for you. There’s not a lot of homework, you only pay a small management fee, and there’s no lack of specialized ETFs to invest in.
You want to invest in Japan? The EWJ (Stock Quote: EWJ) tracks Japan’s Nikkei Index. You want to invest in U.S. stocks? The SPDR (Stock Quote: SPDR) tracks the Down Jones Industrials. You like oil and energy? The OIH (Stock Quote: OIH) tracks the oil sector index.On and on and on they go. ETFs have as many flavors as Baskin-Robbins has different scoops of ice cream. That means ETFs can be used to develop diversified portfolios that give you a chance to be spared the worst of any one sector's downturn. But I don't like to have all of your eggs in one ETF basket. Instead, you should have five different sectors to protect yourself.
As an industry, though, ETFs are in good health. Assets under management are around $500 billion, and analysts expect the ETF market to grow by 20% in 2009, bear market or no bear market. The number of ETFs will slide, however. There were 290 ETFs in 2007, and 230 ETFs in 2008. This could be the year where ETFs slide under the 200 mark, as survival of the fittest – one of Wall Street’s finest traits – works its magic.