Favorable market conditions within an economic category will determine the best market index fund. Index funds are created to track broad or specific segments of the market through the acquisition of assets related to the index. Factors that create favorable conditions can be political or economic events as well as issues of supply and demand. Broad-based funds may track the economy of a country, while more specific funds may track the value of a particular sector or industry. Finding the best index fund for a particular investment objective is a function of market analysis.
Exchange-traded funds (ETFs) are index funds that trade like individual stocks. A wide range of ETFs are available that track industries, commodities and countries. ETF analysis can be performed by the investor through fundamental and technical methods or subscribed to through online financial services. Online ETF and stock brokers generally supply clients with software programs that can analyze investments according to requirements and objectives. ETFs are easy to trade and can be charted to apply indicators and technical analysis techniques.
A variety of financial services rank and rate mutual funds according to performance factors and provide a list of recommended funds. Mutual funds can be conservative or aggressive in nature and suitable for long-term or short-term investment objectives. Many funds are actively managed and may incur management fees. Financial advisers can help investors to select the mutual fund that is appropriate for the investment objective. Many brokers offer services that help in the selection of a mutual fund that best suits the financial goal and risk appetite of the investor.
Broad-based funds offer the highest degree of diversification because the securities are not industry specific. Funds that track the performance of the S&P 500, the FTSE 100 and the Nikkei 225 are tracking general economic conditions within countries. Commodity funds are available that track large industrial segments such as energy and agriculture. These funds can track a broad range of securities that give the investor a diversified portfolio within a certain economic sector.
The investor interested in a particular industry such as transportation or utilities can refer to a wide range of ETFs and mutual funds. Large institutional traders typically transfer assets within various industry sectors, creating a cycle of industry performance. Following the "big money" is a technique used by professional traders to capitalize on the performance cycles created by large commercial traders. Economic and political factors can greatly affect the production and value of certain industries.