You may have heard of exchange-traded funds, ETF for short, which are investment vehicles that track an index. But did you know there are bond ETFs?

ETFs work much like index mutual funds in that they hold assets in quantities mimicking an index. But, unlike mutual funds, ETFs trade on an exchange, like a stock.

Bond ETFs are simply ETFs that track a bond index instead of a stock index. Some track broad bond indices, such as the Lehman US Aggregate Index. Others track narrower bond indices, such as the Lehman 1-3 Year Bond Index and the Lehman 7-10 Year Bond Index. This allows investors to obtain exposure to bonds of specific maturities.

Bond ETFs are attractive because they offer easy diversification as well as low costs and tax efficiency. Because they aren’t actively managed, ETFs typically don’t have high fees. They also tend to have low turnover, to they generate relatively low capital gains.

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Today’s energy markets are booming, and that’s fueled demand for new ways to invest in the sector—including exchange-traded funds, or ETFs.

ETFs are investment vehicles. They work much like index mutual funds in that they hold assets in quantities mimicking an index. But, unlike mutual funds, ETFs trade on an exchange, like a stock.

Energy ETFs are simply ETFs that track energy-related securities. Some of them track broad market indices, such as the Dow Jones U.S. Energy Sector Index or the Goldman Sachs Natural Resources Index. Other track specific sub-sectors, such as oil, natural gas, or alternative energy. You can even get energy ETFs that invest only in foreign stocks.

Most investors won’t want to make energy ETFs the bulk of their portfolio—it’s simply too risky. But energy ETFs can be a good diversifier. That’s because they can help hedge your portfolio against rising energy prices, which can drive up inflation and drive down the prices of stocks.

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Exchange-traded funds. Index funds. What’s the difference?

An exchange-traded fund, ETF for short, is an investment vehicle. Like a mutual fund, it holds assets, such as stocks or bonds. But, unlike a mutual fund, it trades on an exchange, like a stock.

Most ETFs track an index, such as the Dow Jones Industrial Average or the S&P 500 Index. As a result, many people think of ETFs as modified index funds.

ETFs, which are relatively new investments, are attractive because of their low costs and tax efficiency. Because they aren’t actively managed, ETFs typically don’t have high fees. They also tend to have low turnover, to they generate relatively low capital gains.

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