Types of ETFs
A map of the main kinds of ETFs, from broad market funds to sector, bond, international, and actively managed funds, and the main risk that comes with each.
The short version
ETFs come in many kinds. Broad market funds own a large slice of a whole market. Sector and thematic funds concentrate on one industry or idea. Bond, international, and commodity funds bring their own risks, such as interest rates and currencies. Actively managed ETFs try to beat a benchmark. Some exchange-traded products aren't funds at all. The broader the fund, the less any single company or idea can hurt you.
By the end of this lesson, you'll be able to
- Describe the main types of ETFs and what each holds
- Identify the main risk that comes with each type
- Spot overlap when combining funds
Why this matters
"ETF" describes how a fund is packaged and traded, not what's inside it. An ETF can hold thousands of companies across the world or a few dozen in a single industry. Knowing the main types, and what can go wrong with each, helps you see what a fund will actually do in your portfolio.
The main types
| Type | What it holds | Main thing to watch |
|---|---|---|
| Broad market | Hundreds or thousands of companies across a whole market | You get the market's full ups and downs |
| Sector | Companies in one industry, such as technology or energy | Concentration: one industry's bad years hit the whole fund |
| Thematic | Companies tied to an idea or trend | Concentration, and themes that may already be popular and expensive |
| International | Companies outside the US, in developed or emerging markets | Currency and country risks |
| Bond | Government or corporate bonds | Interest rate and credit risk, covered in the next module |
| Dividend and factor | Stocks chosen by rules, such as dividends, value, or size | Custom indexes that behave differently from the broad market1 |
| Commodity | Exposure to prices of things like gold or oil | How the fund gets that exposure affects its returns |
| Actively managed | Investments chosen by managers, not by an index2 | Results depend on the manager's decisions |
| Leveraged and inverse | Positions designed to multiply or reverse an index's daily return | Designed for one day, not for holding3 |
Index or active
Many ETFs follow an index: the adviser tries to match the returns of a defined list of securities. In an actively managed ETF, the adviser buys and sells without regard to matching an index.2 Active ETFs bring back the question from Index Funds: can the manager add enough to make up for any extra cost?
Not everything on an exchange is a fund
Some exchange-traded products look like ETFs but work differently. An ETN. Exchange-traded note: unsecured debt issued by a financial institution that promises a return linked to an index. Unlike an ETF, it doesn't hold the underlying assets. Glossary, or ETN, is a debt security: unsecured debt issued by a financial institution that promises a return linked to an index. It doesn't own the underlying assets, so its value depends on the issuer's ability to pay. If the issuer's credit weakens, an ETN can fall even when its index doesn't.4
The rest of this lesson is for members
Still to come in this lesson: Watch for overlap, the key takeaways, and 2 quiz questions with explanations.
Membership opens every lesson in the curriculum, the capstone projects, the interactive tools, and the members-only channels in the Hyperion Entities Discord. The first lesson of every module stays free.
Go deeper
- Leveraged and Inverse ETFsPart 2: What You Can Own
- DiversificationPart 5: Building a Portfolio
- Concentration vs. DiversificationPart 5: Building a Portfolio
Notes and sources
- Investor.gov, U.S. Securities and Exchange Commission. Investor Bulletin: Smart Beta, Quant Funds and Other Non-Traditional Index Funds. Checked 2026-09-30. Back to text
- Investor.gov, U.S. Securities and Exchange Commission. Updated Investor Bulletin: Exchange-Traded Funds (ETFs). Checked 2026-09-30. Back to text
- Investor.gov, U.S. Securities and Exchange Commission. Updated Investor Bulletin: Leveraged and Inverse ETFs. Checked 2026-09-30. Back to text
- FINRA. Exchange-Traded Notes: Avoid Unpleasant Surprises. Checked 2026-09-30. Back to text