An exchange-traded fund (ETF) portfolio is simply a portfolio, or group of investments, that consists entirely of ETFs. ETFs are very much like mutual funds in that they are a basket of stocks or other assets that are managed in either a passive or active investment style. Passively managed ETFs aim to mimic the performance of a particular market index, while actively managed ETFs aim to outperform a particular market index. ETFs are different than mutual funds in that they are exchange-traded throughout the day, providing intra-day liquidity for investors. Because ETFs trade on exchanges, investors can short them and buy or sell options on them.
This flexibility may make a portfolio of ETFs more attractive to investors than portfolios of mutual funds. Due to the diversity of ETFs available to investors, almost any type of ETF portfolio can be constructed. There are ETFs available that cover almost every type of asset imaginable. Equity ETFs available include large cap, mid cap and small cap, as well as growth, value and blend styles among these various market capitalizations. Also, there are ETFs that track every major equity index in the U.S. and most developed countries.
Beyond this, many different types of fixed-income ETFs track corporate bond, treasury bond, high-yield, international and emerging-debt indexes. Investors can also invest in real estate, commodity, alternative investment and currency ETFs. Lastly, many firms have leveraged ETFs that offer two or three times the return of an underlying index, as well as inverse ETFs that provide the opposite returns of an underlying index or asset.