How to invest in US ETFs?

The most challenging part for many novice and busy investors could be finding a good company to invest in.

Therefore, Warren Buffett, famous for his successful career picking stocks, shared a tip for his believers. He said most investors are better off with a simple yet effective approach: Investing in index funds.

"In my view, for most people, the best thing to do is own the S&P 500 index fund," Buffett said at Berkshire Hathaway's annual 2021 meeting on May 2.

ETFs are a type of exchange-traded product that offers investors a way to pool their money in a fund that makes investments in stocks, bonds, or other assets that provide a potential return.

Compared with stocks or mutual funds, ETFs mainly have 4 features：

• Diversification. Diversification aims to reduce the potential risk of a sharp decline in a single stock while capturing potential upside opportunities.

• Simplicity. If you are bullish on the stock market as a whole or a particular sector but don't know how to pick stocks, a regional ETF or a Sector ETF could be a potential option.
  

• Flexibility and transparency. Many but not all ETFs publish holdings daily, while mutual funds report their holdings quarterly. You can buy and sell ETF shares directly on major stock exchanges throughout the day.
  

• Cost-efficiency. ETFs usually charge comparatively lower management fees (known as the expense ratio) than traditional mutual funds.
  

The US ETF market is by far the largest globally, and we also focus on US ETFs in the article.

The US ETF market is the world's most mature market, regardless of ETFs' amount, type, and asset size. By the end of 2021, more than 2,000 ETFs have been issued in the US stock market, with total assets exceeding $6 trillion. US ETFs cover almost all asset classes available in the world, including stocks, bonds, and commodities in different regions of the world. Some ETFs are called leveraged ETFs and generally use debt to amplify returns. Investors may choose to go long or short.

We often hear financial bigwigs talk about going long on gold and bonds or going short on crude oil. Don't you think these topics are too far away from our daily life? In fact, with a Futu SG securities account, ordinary investors can take advantage of these investment opportunities by trading ETFs of these underlying assets.

So, let's take a look at some types of US ETFs.

If you are bullish on the long-term trend of US stocks, then you may consider ETFs that track the major US stock indexes, mainly the S&P 500 and Nasdaq-100 Index.

1. S&P 500 Index ETFs    

The S&P 500 Index consists of the top 500 blue-chip companies in the US. The top three S&P 500 ETFs in the US stock market are SPY, IVV, and VOO, ranking first, second, and fourth among all US ETFs in terms of size. These ETFs seek to replicate the S&P 500 Index, with the top 10 holdings being Apple, Microsoft, Amazon, Google, Tesla, etc. Their performance is also closely correlated with the underlying index, exhibiting a 27% increase in 2021.

The table data is based on the closing price on May 11, 2022; Sources: moomoo app

2.Nasdaq-100 Index ETFs

The Nasdaq-100 includes the 100 largest non-financial companies listed on the Nasdaq stock market, mainly covering the technology sector. One of the famous established ETFs that tracks this index is QQQ, the fifth-largest ETF in the US and second only to SPY in terms of turnover. QQQ's portfolio composition overlaps with that of SPY, with several large technology stocks such as Apple, Microsoft, and Amazon. QQQ's 2021 returns stayed in line with the Nasdaq-100 Index.

The table data is based on the closing price on May 11, 2022; Sources: moomoo app

In addition to these large-scale index ETFs, you can also consider sectors that might do well in the long run by tracking sector ETFs. Some top sector ETFs are listed below.

1. Energy

The energy sector has been one of the hottest sectors in the last two years. With energy prices such as oil and gas prices boosted by inflation and economic recovery, energy-related stocks led the way in 2021. Large ETFs in the energy sector include XLE, VDE, and XOP, all offering exposure to oil, gas, energy equipment, and services companies. All of these ETFs returned more than 50% in 2021.

2. Real Estate

Against the backdrop of high inflation, investors have also turned to anti-inflation sectors such as real estate. The three largest real estate ETFs are VNQ, SCHH, and IYR, all of which have returned more than 30% in 2021.

3. Semiconductor

In the technology sector, Semiconductor led the way. With the global chip shortage in 2021, stocks in the semiconductor industry have generally risen sharply. Popular semiconductor ETFs are SOXX and SMH, gaining over 40% in 2021, almost double that of QQQ.

There are leveraged ETFs for the above broad-based index or sectors, except for ETFs that replicate at a 1:1 ratio. For example, SSO are twice the daily performance of the S&P 500. When the index goes up 1%, theoretically, SSO goes up 2%, and vice versa. To name a few more examples, TQQQ triple leveraged the NASDAQ 100; NRGU triple leveraged oil-related stocks; GUSH, a 2x leveraged ETF in the Oil & Gas Industry; and NAIL, a 3x leveraged ETF in the real estate sector.

In addition, there are also inverse ETFs for US stocks. For example, for the S&P 500, SH and SPDN are designed to provide 1x inverse exposure to the index's daily performance. SDS provides two times, and SPXU and SPXS leverage up to three times the inverse return of the underlying index. For Nasdaq-100, QID and SQQQ provide two and three-times leveraged inverse exposure to the index, respectively.

It is worth noting that leveraged ETFs are typically used for day trading, and the leveraging effect is generally reset daily. As derivatives used to create the leverage are from financing and daily adjustment of positions, leveraged ETFs are not suitable for long-term holdings, especially during volatile markets.

How to find an ETF on Moomoo?

In addition to searching the ETF symbols directly, you can also find a wide variety of ETFs on moomoo via:

Markets> US> ETF> Different types of ETF

Of course, all investments carry risk, and ETFs are no exception. With the abundance of choices out there, it's important that you first determine your portfolio's allocation and then, based on those decisions, select ETFs to meet your investment goals.