The classification of ETFs (Exchange-Traded Funds) helps organize these funds based on specific characteristics. This process typically occurs across four levels: asset class, category, focus, and niche. Here’s a closer look at each:

• Asset Class: The broadest level, defining the type of investments the fund trades. Common asset classes include equities (stocks), bonds, real estate, and commodities.
• Category: Subgroups within an asset class. For instance, in the equities class, categories could include sectors (e.g., technology, healthcare), company size (large-cap, mid-cap, small-cap), or investment style (growth, value).
• Focus: This level narrows down to more specialized characteristics. For example, an ETF focused on technology stocks might specifically target sub-sectors like artificial intelligence or cybersecurity.
• Niche: The most detailed classification, targeting highly specific market segments. For example, a niche ETF might invest exclusively in companies developing electric vehicles.

This hierarchical structure simplifies ETF selection by aligning funds with investors’ specific goals and interests.

Asset сlass

1. Equity
   These funds consist solely of equity securities, representing ownership shares in businesses. Equity holders have rights to profit distributions and the ability to trade shares on public exchanges.

2. Fixed Income
   These funds include only fixed-income securities, such as debt instruments issued with a specified maturity date and par value. Examples include private placements, perpetual securities, convertible securities, and preferred securities.

3. Commodities
   These funds are designed to track returns within the commodity sector, which comprises exchange-traded physical goods or contracts related to these goods.

4. Currency
   These funds focus on returns from currency investments. A currency serves as a medium of exchange, unit of account, and store of value. Cryptocurrencies are currently classified within this asset class.

5. Asset Allocation
   These funds combine investments across at least two asset classes, such as equity, fixed income, commodities, and currency. However, if a fund meets specific criteria, it may instead be classified under Alternatives.

6. Alternatives
   This asset class includes funds that may hold any type of asset and distinguish themselves from single-asset-class funds by one or more of the following:

   • Following a hedge fund strategy (e.g., absolute return, event-driven, long/short, market neutral, multi-strategy).
   • Investing in assets with unique economic exposures, such as interest rate spreads.
   • Offering returns tied directly to asset volatility.

This classification system helps investors identify and understand the focus of each ETF.

Table: Asset class

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