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Exchange-traded funds have emerged as a popular tool to manage risk at a time when the stock market continues to set new standards for unpredictability.
The funds, more commonly known as ETFs, allow investors to put money in areas where many usually dare not go-- commodities, foreign markets, and even get into short-selling with funds that can pay double if the market falls.
Rydex Investments, one of the leaders in ETF offerings, recently rolled out eight new funds that play both upside and downside moves in the markets.
"If stocks aren't expected to have a lot of directionality, what's an investor to do?" David Reilly, Rydex's director of portfolio strategies, said at a recent news conference in New York announcing the rollout.
ETFs have become in vogue to hedge risk in a crazy day like Monday, when the major indexes started sharply higher then moved just as quickly and just as far into negative territory, only to whipsaw back again. The Dow Jones Industrial Average was up more than 100 points just before noon then was down nearly 150 points before recovering.
The flexibility of ETFs, combined with their lower fees and risk reduction, are making them into some of the hottest plays on the market right now. ETFs are a pool of securities that mostly track sector indexes, like transports, utilities, energy or commodities.
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