The majority of funds within the ETF market can be categorized into the following types:
Tracks a particular equity index.
Provides exposure to a universe of bonds being tracked by the market (i.e., high-yield bonds, municipal bonds and Treasurys).
Sector and Industry ETF
Provides exposure to a specific industry.
Tracks the price of a certain commodity.
Tracks a market-capitalization focus or investment style.
Foreign Market ETF
Tracks markets outside of the U.S.
Designed to profit from a decline in the value of an underlying benchmark by holding various short positions, or using a combination of advanced investment strategies to profit from falling prices.
Alternative Investment ETF
Implements a nontraditional asset class or investment approach that can help manage volatility during times of uncertainty for traditional asset classes.
Passively Managed ETFs
Passive ETFs are designed to closely track the performance of a particular index. This type of investment offers investors the closest thing to investing in an index by providing direct access to the underlying securities making up that index. This passive investment approach also helps contribute to relatively low fees.
Actively Managed ETFs
Active ETFs are relatively new and have become increasingly popular in recent years as investors have embraced these vehicles as a means of combining the talents of experienced and professional management teams with the benefits of the exchange traded structure. Unlike traditional passive ETFs, which are designed to track an index, actively managed ETFs permit the fund manager to make more active decisions regarding security selection in an attempt to outperform the index. Active ETFs are generally more expensive than passive ETFs, since the overhead and expenses required to run an active ETF are greater.