ETFs Serves As A Better Alternative To Direct Equities

As the world recovers from the financial crisis of 2008, alternative investments like Exchange Traded Funds or ETFs have gained limelight in the past year. This mode of investment can be used to reduce stock specific risk as well as to gain broader market exposure. Some of the fastest growing ETFs belong to the commodities or emerging markets sectors, in which investors feel that they can find shelter from inflation, a hedge against U.S. markets, or high returns to compensate for the loss over the past year. Among the large cap growth funds, the PowerShares Dynamic Large Cap Growth Fund (NYSE: PWB) and Vanguard Growth ETF (NYSE: VUG) have performed well in 2009 as they hold stocks like Cisco (NASDAQ: CSCO) and Microsoft (NASDAQ: MSFT). Small-cap stocks are often more volatile than their large-cap counterparts so using an ETF to gain exposure to a field of growth firms makes even more sense from a risk perspective. Small-cap growth funds can not only serve as large, liquid vehicles to track small-cap growth firms but also are inexpensive & low-risk methods to access the small-cap growth space. The iShares Russell 2000 Growth Index ETF (NYSE: IWO), tracking more than 1,200 small-cap firms, helps minimize security-specific risk. The Vanguard Small-Cap Growth ETF (NYSE: VBK) is another ETF in the small-cap space, tracking 978 small-cap firms and is up more than 36% year to date as against 29% for iShares Russell 2000 Growth Index ETF.