Since Exchange Traded Funds (ETFs) are relatively new on the investment scene, there aren’t as many signal services for these products as there are for other asset classes. Run an Internet search for futures signals services and you’ll turn up hundreds of options. Forex is the undeniable king of the signal service world. It would take investors hours, if not a couple of days, to sift through all the of the forex signals services on the market.
Like forex before them, ETFs have surged in a popularity in recent years and this is sure to lead to more pick services hitting the market. We’ve witnessed astronomical growth in the accessibility of forex trading to retail investors and the resulting swell in signal services. By all accounts, ETFs are blazing a similar trail, so we thought it would be a good idea to talk about some of the things you’ll want to look for when considering an ETF signal service.
Is the Service for Active or Passive Investors?
One point about ETFs that is brought up all the time is that they trade just like stocks. To be sure, that is an advantage, but it can make shopping for an ETF signal service a bit confusing. Due to the fact that ETFs do trade like regular shares of stock, many ETF pick services are geared toward active investors or even day traders. They may recommend several ETFs to trade per day, but what do you do if you’re not an active trader?
Obviously, you need to do your homework and find one that best fits your investing style. We’ve come across some pretty good options for investors with broader time horizons when it comes to ETF pick services. Some may recommend one or two trades a week. We’ve even found a few that feature an ETF of the month. These are more suitable options for investors that don’t want to be tied to their computers all day.
Along these same lines, we should briefly discuss leveraged ETFs. You may have heard of these products. They are designed to give two times, or in some cases triple, the daily performance of the group of stocks or index the ETF tracks. Leveraged ETFs are risky bets and not for every investing style, so if you come across a service that specializes in this area of the ETF world, be sure they can show you some historical data regarding their performance before committing money to the service.
Is the Signal Service Versatile?
Another great thing about investing in ETFs is that they touch every corner of the financial market. Stocks, commodities, bonds, currencies. You name it and there’s probably a corresponding ETF and probably a bearish ETF to go along with it. And with new ETFs popping up seemingly every week, the choices just get broader and broader.
As this applies to signal services, you’ll probably want to find one that gives you exposure to more than one type of ETF. For example, there are dozens of ETFs that track energy stocks. Since the energy sector is so large, encompassing oil, natural gas, coal, solar and other subsectors, an ETF pick service could, in theory, recommend a new energy ETF for a few months.
That’s not the type of signal service you want to be involved with. After all, part of the reason we invest in ETFs is for diversification. When shopping around, ask the developer to provided you with a list of recent recommendations to get a sense for how diversified the picks are.
Read the Fine Print
This is a point we don’t often talk about when it comes to signal services, but it’s worth noting. Read the fine print regarding the service you’re considering. This is where the developer is going to tell you that they’re not responsible for any trading losses you may incur while using their system and that past performance is no indicator of future results. Yes, reading this legal mumbo jumbo can be tedious, but it will keep you from getting unrealistic expectations and being surprised, in a bad way, in the end.
Ultimately, we’re fans of ETF signal services that don’t just feed investors trade picks, but those that also teach you a little something as well. While ETFs are all the rage in the investing community, there are still scores of investors that don’t know the first thing about ETFs and how to properly integrate them into their portfolios. Consider this the “teach a man to fish” principle. It’s great to have a service that feeds you winners, but it’s even better to have one that empowers to you find winners on your own. Most signal services have a specific pattern or setup that they look for when picking trades and if you watch closely enough, you’ll be able to discern the patterns on your own and become an astute ETF investor.