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Basics of ETFs

The Most Important Types of ETF Funds

October 20, 2025
18 Min Read

The ETF universe is far more diverse than simply tracking a broad basket of global stocks or bonds. Investors today have access to a wide spectrum of funds, enabling them to craft highly sophisticated portfolios—whether built on traditional stock market indices, focused sector trends, commodities, real estate, or even innovative thematic strategies. Each ETF category provides unique opportunities, different levels of risk, and distinct ways of responding to shifting market environments. Below you’ll find an overview of the most important types of ETFs and indices that every informed investor should know to build a strategy tailored to individual goals.

⚠️ Note: When comparing funds, it’s helpful to use an ETF search tool. Various filters are available, such as asset class (stocks, bonds, commodities, etc.). This makes it easy to compare ETFs within a given category.

Equity

Equity ETFs are the most popular category of exchange-traded funds and the best starting point for most investors. They function as ready-made baskets of various companies—often dozens, hundreds, or even thousands—providing a simple way to invest in the stock market without having to pick individual firms yourself. By purchasing an equity ETF, you are effectively buying a share in an entire market or a selected segment, which offers strong growth potential but also carries the volatility (and risk) typical of equities.

Most equity ETFs track well-known stock market indices, granting quick access to major markets such as global, US, or European stocks. This means you don’t need to be an expert to invest globally or in particular regions and sectors.

Below are examples of stock market indices that equity ETFs most commonly track:

  • Global indices – these benchmarks include companies from many different countries, often both developed and emerging markets. As a result, this type of index reflects the condition and trends of the global equity market, rather than just a single country or region. The most popular global indices provide investors with broad, international exposure in a single transaction, making them a solid foundation for maximum portfolio diversification. For example:
  • Regional indices – These are benchmarks that include companies from a selected geographic area, such as Europe, developed markets, emerging markets, or a specific part of the world. Their composition is designed to reflect the situation and trends of a given market or group of countries, rather than the whole globe. Regional indices make it easy to track the development of a chosen region and diversify investments based on the unique economies, trends, and risks characteristic of that area. For example:
  • Country indices include companies listed on the stock exchange of a single country and make it possible to track the condition and economic trends of that specific market. In practice, indices such as the S&P 500 (United States), MSCI USA, MSCI Japan, MSCI China, or FTSE 100 (United Kingdom) present a summary of the largest and most significant companies in a given country, serving as an important reference point for analysis and performance comparison. With these indices, investors can invest in the economy of a selected country without the need to choose individual stocks, while also gaining exposure to various sectors of that market within a single index. Examples of country indices:
  • Sector and thematic indices focus on specific industries or selected trends, rather than the entire market or individual countries. They include stocks of companies operating within a single sector—such as technology, healthcare, renewable energy, or real estate. This allows investors to precisely track and invest in particular branches of the economy or themes that stand out for their dynamic growth or stability, depending on the index selected. Such indices also make it easy to compare how individual sectors perform across different market periods. For example:

Equity ETFs make it possible to build a diversified portfolio, even when investing small amounts. They are liquid, transparent, and often much cheaper to maintain than traditional actively managed funds.

⚠️ Note: For the most popular stock market segments, ETF rankings are available, created according to criteria set by the relevant analysis team.

Bond

Bond ETFs are the second most popular type of fund after equity ETFs and form the foundation of more balanced investment portfolios. By purchasing such an ETF, you invest in an entire set of bonds at once: these may be government bonds, corporate bonds, or other debt instruments issued by various entities and countries. This means a single investment offers regular interest income and spreads risk across many issuers. Such funds usually have lower volatility than equity ETFs, making them a great stabilizing element when an investor seeks peace of mind and wants to protect part of their capital from major price swings.

Bond ETFs track well-known bond indices, making it easy to invest globally, in a specific market, or in a chosen group of issuers—without the need to analyze each series of bonds individually.

Bond ETFs can be classified based on the index they follow:

Geographic breakdown

  • Global: Indices such as the FTSE World Government Bond Index combine government bonds from countries around the world (for example, the US, Japan, Canada, Western Europe),
  • Europe: An example is the Bloomberg Euro Aggregate Treasury, which focuses exclusively on government bonds from eurozone countries,
  • Emerging markets: The JP Morgan EMBI Global Core represents bonds issued by emerging market economies.

Breakdown by issuer

  • Government: Funds that track indices of bonds issued by governments, such as the FTSE World Government Bond – Developed Markets (EUR Hedged),
  • Corporate: Mirror indices of corporate bonds, often from various sectors of the economy, such as the Bloomberg Euro Corporate Bond,
  • Aggregate: Contain different types of bonds—government, corporate, and government agencies—aiming to reflect the full picture of the global debt market. Example: Bloomberg Global Aggregate Bond (EUR Hedged).
  • Inflation-linked: Go a step further by focusing on inflation-indexed bonds, protecting capital during periods of rising prices, such as the Bloomberg Euro Government Inflation-Linked Bond (EUR Hedged).

⚠️ Note: For the most popular segments of the bond market, ETF rankings are available, created according to criteria set by the respective analysis team.

Commodity Funds

Commodity ETFs and ETCs play a key role in the exchange-traded market by allowing investors to gain exposure to a wide range of commodities. For beginners, their main advantage is ease of access—an investment account is all you need to participate in the price changes of assets like gold, silver, platinum, oil, gas, or agricultural products.

What are commodity ETFs?

A commodity ETF is an investment fund that tracks the performance of a chosen index or commodity market. It can invest in futures contracts (such as for oil or grain), in physical reserves (such as gold), or in shares of companies related to commodities.

What are ETCs?

An ETC (Exchange Traded Commodity) is a financial instrument similar to a debt certificate—think of it as a “commodity bond.” ETCs are most often used for investing in single commodities, mainly precious metals like gold, silver, or platinum. They are typically physically backed by the corresponding amount of the precious metal stored in a bank or custodian’s vault. However, ETCs involve so-called counterparty risk, meaning exposure to the issuer’s reliability and the methods used for storing the assets.

Which commodities do ETFs and ETCs cover?
The most popular instruments are tied to:

  • Precious metals — gold, silver, platinum,
  • Energy — oil, natural gas,
  • Agricultural products — such as wheat, soybeans, corn,
  • Broad baskets of industrial commodities.

Most commodity ETFs track indices such as the Bloomberg Commodity Index, S&P GSCI, or CRB Index, enabling investment in a diversified basket of raw materials with just one transaction.

Commodity ETFs and ETCs are excellent tools for diversification—commodity prices often move differently than equities or bonds. They can be used as a hedge against inflation and global economic turbulence.

⚠️ Note: For the most popular commodities, ETC (ETF) rankings are available, created according to criteria set by the ETFatlas team.

Cryptocurrencies

Crypto ETFs and ETNs are straightforward instruments that allow investment in bitcoin, ethereum, or other digital currencies—without specialist knowledge, a crypto wallet, or the need to open an account on a cryptocurrency exchange.

A crypto ETF or ETN can be purchased on the stock exchange just like shares or standard ETFs—a brokerage account is all that’s required. Each unit reflects the price of the chosen cryptocurrency, automatically providing investors exposure to its value fluctuations.

What is an ETN? An ETN (Exchange Traded Note) is a special exchange-traded financial instrument that works similarly to a bond. In practice, when buying an ETN, the investor “lends” money to the issuer (usually a large bank), and repayment depends on the price movement of the selected asset, like bitcoin or ethereum. Crypto ETNs track the price of the chosen digital currency without requiring physical purchase or the management of a digital wallet. However, it’s important to remember that ETNs always involve so-called counterparty risk—meaning that if the issuer defaults, the investor could lose their funds.

The most common ETNs track the prices of:

  • Bitcoin (BTC),
  • Ethereum (ETH),
  • Occasionally, baskets of several cryptocurrencies.

What is a cryptocurrency ETF? An ETF is an exchange-traded investment fund that can also track the prices of cryptocurrencies, similar to an ETN. ETFs, however, are more regulated: the investor buys shares in a fund that actually holds digital assets or contracts for selected currencies. The first ETFs of this type were created for bitcoin and ethereum, and there are now funds tracking other blockchain projects as well. Examples include:

⚠️ Note: For the most popular cryptocurrencies, ETF rankings are available, created according to criteria set by the ETFatlas team.

Multi-asset

A multi-asset ETF is an ideal solution for those who want to simplify investing—it is a fund that invests simultaneously in several asset classes, most often stocks and bonds, and sometimes even commodities or real estate. When purchasing such an ETF, there is no need to build a complex portfolio yourself—one transaction provides exposure to a “complete portfolio”, with the allocation between asset classes set by the fund manager.

For investors, this means less stress and paperwork: there’s no need to rebalance, analyze allocations, or carry out multiple transactions. The management strategy (e.g., 60% equities/40% bonds) is built into the fund and maintained automatically.

The most popular multi-asset fund families on the European market include:

  • Vanguard LifeStrategy — available in various versions depending on risk level (e.g., 80/20, 60/40, 40/60, 20/80 equities/bonds),
  • BlackRock ESG Multi-Asset,
  • VanEck Multi-Asset,
  • Lyxor Portfolio Strategy,
  • Amundi Multi-Asset.

Multi-asset ETFs can invest directly in stocks and bonds or — as “funds of funds”— hold other ETFs in their portfolios. This makes the product even more cost-effective and straightforward to use, allowing individual investors to build a global portfolio with even small amounts, all in just one click.

⚠️ Note: To compare multi-asset ETFs, in addition to using the search tool, you can also refer to the multi-asset ETF ranking, created according to criteria set by the ETFatlas team.

Factor ETFs

Factor ETFs are exchange-traded funds that select companies based on clearly defined characteristics rather than simply replicating the entire market or a popular index. In practice, this gives investors the ability to implement proven investment strategies without the need for advanced stock selection or analysis.

Instead of investing in the entire index (such as the S&P 500), a factor ETF selects only those companies that meet a chosen criterion—referred to as a factor.

Here are some of the most popular examples:

  • Momentum: Investing in companies whose prices have increased faster than the market over a recent period—capitalizing on trend strength,
  • Small Cap: Focusing on smaller, often underappreciated companies, which historically have shown higher growth potential, albeit with higher risk,
  • Minimum Volatility: Choosing stocks with the lowest price fluctuations to reduce overall portfolio volatility,
  • Value: Seeking attractively valued companies—those that are inexpensive relative to their financial results and assets (so-called value investing),
  • High Dividend: Investing in companies that pay regular, high dividends.

With factor ETFs, there’s no need to analyze hundreds or thousands of companies individually: simply buy an ETF targeting the desired factor to access an established strategy within a single instrument—while maintaining portfolio diversification.

Sector ETFs

Sector ETFs allow investors to focus on a chosen segment of the economy by investing in stocks of companies operating within a particular sector—such as technology, healthcare, energy, finance, or real estate. These funds also enable investors to capitalize on strong trends or distinctive characteristics unique to a specific market segment. They’re a good choice for those who believe in the growth potential of a particular industry or want to capitalize on cyclical shifts in the economy.

A sector ETF tracks an index composed of companies linked to a given sector. With just one purchase, an investor gains broad exposure to a range of businesses operating within that sector (such as all the leading pharmaceutical corporations or renewable energy firms). This enables easy comparison of a sector’s results with the broader market and facilitates quick portfolio adjustments in response to changing economic trends.

Popular examples of sector indices and ETFs include:

Sector ETFs are an effective way to build a portfolio concentrated in a single industry, but they carry the risk of higher volatility should conditions in that sector change. Over the long term, sector ETFs can enhance profit potential, but they are best used as part of a diversified portfolio—not the only investment solution.

Thematic ETFs

Thematic ETFs are highly convenient tools for investors who want to build a portfolio based on popular, forward-looking trends rather than traditional sectors or the entire market. Unlike sector ETFs, which focus on a single area of the economy (like energy or finance), thematic ETFs select companies from various sectors that are linked by a common theme—such as clean energy, digitalization, or robotics.

How do they work? The ETF provider defines a specific topic they believe has significant growth potential, such as artificial intelligence, biotechnology, innovation, or cybersecurity. The ETF portfolio then includes companies that are genuinely active in that market—these can come from entirely different sectors but share a unified investment theme.

For example, a clean energy ETF will invest in both solar panel producers and businesses involved in wind turbines, low-emission transport solutions, or energy storage. Themes might cover climate change, innovation, automation, gold mining, digitalization, biotechnology, or even solutions for aging populations—anything aligned with major market trends.

Examples of popular investment trends around which thematic ETFs are built:

  • Climate change, decarbonization, and clean energy: solar, wind, hydrogen,
  • Artificial intelligence and machine learning,
  • Biotechnology and medical innovation,
  • Robotics, automation, and the industrial Internet of Things,
  • Cybersecurity, data management, digital transformation,
  • Gold and other strategic metals mining,
  • Fintech, blockchain, and digital payments.

Sample thematic ETF products include:

ESG

ESG ETFs are investment funds that select companies based on three key areas: Environmental (environmental protection), Social (social responsibility), and Governance (corporate governance). They respond to the global trend of investing in companies that conduct business ethically, sustainably, and with social responsibility. ESG funds don’t focus on a single market or sector, but instead evaluate companies according to their overall behavior and impact on the world.

Examples of major ESG ETFs:

ESG ETFs are sometimes considered a subcategory of thematic ETFs, since they are often created by re-designing classic products and include only companies that meet ESG standards in their portfolios.

Leveraged and Inverse

Leveraged and inverse ETFs are investment tools designed for experienced investors and short-term trading, with mechanisms and risks that differ significantly from standard index funds.

  • Leveraged ETFs offer exposure with leverage, typically 2x or 3x, meaning the fund’s daily returns are doubled or tripled relative to the underlying index. For example, if the S&P 500 index rises by 1% in a day, a 2x leveraged ETF should rise by approximately 2%; if it falls by 1%, the ETF loses 2%. Gains and losses are therefore magnified, and because of compounding effects, holding these ETFs over the long term can result in returns that diverge significantly from simply doubling or tripling the index’s performance,
  • Inverse ETFs (also called short or bear ETFs) allow investors to profit from market declines—their value increases when the underlying index falls. For example, if the Nasdaq-100 falls 1% in a day, an inverse ETF gains about 1% that day. Many inverse ETFs also offer leverage, such as 2x or 3x inverse exposure.

These products cover markets and assets such as:

  • Equities (e.g., S&P 500, Nasdaq 100, DAX, Euro Stoxx 50, CAC40, MSCI USA),
  • Bonds (e.g., German Bunds, US Treasuries),
  • Commodities (e.g., gold, silver, platinum, oil).

Examples of leveraged and inverse ETFs:

Leveraged and inverse ETFs are mainly recommended for daily trading strategies. Over longer periods, their performance can deviate significantly from the theoretical percentage change of the underlying asset due to volatility decay.

Profits can be spectacular, especially during strong market movements, but losses can also be rapid and severe. Management fees for these funds are higher than for standard ETFs.

⚠️ Important: Leveraged and inverse ETFs are sophisticated exchange-traded instruments designed for active speculation—both on rising and falling prices of equities, bonds, or commodities. They require a solid understanding of their mechanisms and disciplined risk management. For beginners, these products are more of a curiosity and an opportunity to gain practical experience and insight into market dynamics, rather than a suitable option for long-term portfolios.

Actively Managed

Actively managed ETFs are exchange-traded funds that aim not to merely replicate an index, like classic ETFs do, but to achieve superior results through asset selection and a flexible investment approach. Their management strategy may rely on the experience of an investment team—making discretionary decisions—or follow specific algorithms and rules, such as systematic trend-following (managed futures).

Active ETFs have the freedom to decide which stocks, bonds, or other instruments to include in the portfolio, without having to adhere strictly to an index. These funds behave much like traditional actively managed products, but their shares are available via a brokerage account and traded on an exchange, with the full liquidity and transparency of any ETF.

Examples of major providers and active ETF strategies:

  • US: Ark Investment (e.g., Ark Innovation ETF), First Trust, PIMCO
  • Europe: PIMCO, JP Morgan, HSBC, Lyxor, Ossiam, Fidelity, Xtrackers.

Examples of actively managed ETFs include:

Management strategies may include:

  • Trend following,
  • Taking advantage of market opportunities,
  • Dynamic asset allocation across different classes,
  • Using algorithmic analysis of market signals.

⚠️ We invite you to watch or listen to the exclusive interview that Jack Lempart conducted with Jerry Parker – legendary Turtle Trader and leading proponent of trend following strategies. In this conversation, you’ll get an inside look at the history, philosophy, and practical tips for investing according to systematic, trend-driven principles.

Active ETFs are a young but rapidly growing segment of the market—chosen by investors who believe in the value of professional management and seek the potential for higher returns than a simple index. At the same time, it’s important to remember that active strategies usually involve higher management costs and, as with any investment, there is the risk that a fund’s performance may lag behind the broader market.