Exchange Traded Funds
Exchange Traded Funds ( ETFs ) are revolutionising the managed fund industry. These funds that trade on the sharemarket offer cheap investment management fees, simplicity, diversification, low turnover, tax effectiveness and liquidity.
An ETF is a package of diversified securities that uses an index-tracking approach. They have features of both shares and traditional mutual funds.
ETFs pool shareholders’ cash, just like mutual funds but ETFs are listed on the sharemarket and can be bought and sold for the price of brokerage.
The Australian Stock Exchange list a range of domestic ETFs, sector ETFs and international ETFs.
Exchange Traded Funds Portfolio Management
Total Investor advisors are able to use Exchange Trade Funds to best suit an individual investor’s object.
- Build an entire investment portfolio by using a combination of ETFs covering different asset classes and markets
- Use ETFs to lay the foundation of a portfolio as the core or the majority of an investment portfolio and add other investments such as direct shares or sector ETFs to add potentially higher returns.
- Use ETFs as collateral for margin lending
What are Exchange Traded Funds?
Exchange traded funds (ETFs) are index funds or trusts that are listed on an exchange and can be traded in a similar fashion as a single equity.
Today, the number of ETFs that trade options continues to grow and diversify.Investors can buy or sell shares in the collective performance of an entire stock portfolio, or a bond portfolio, as a single security.
Exchange traded funds allow some of the more favourable features of stock trading, such as liquidity and ease of equity style features then more traditional index investing.
The basics of Indexing with Exchange Traded Funds
An index is a collection of securities intended to represent a given market or market segment. An index can be as broad as the entire stock market or as narrow as a single country or industry.
Each index has its own construction methodology, or set of rules for what is included in the index, which is established by its index provider.
Index-based investing offers several benefits, including lower costs than most active management strategies and benchmark-consistent performance.
In addition, index funds are broadly diversified since they typically hold all or almost all the securities within the index. This “instant” diversification helps reduce portfolio risk.
