At Evalesco we help our clients navigate the world of investing. The first part of that process is to ensure you have a plan that will support you on your financial journey, which will make it more likely you will secure a healthy, wealthy and happier future for you and your loves ones.
When it comes to the world of investing, Exchange Trade Funds (ETFs) have emerged as one of the fastest-growing ways to invest.
ETF’s are a type of investment we use to diversify portfolios, lower costs and in general provide broad market exposure. There are some ETF’s in the marketplace that also allow investors to invest in a specific country, theme or industry. With that in mind it is very easy to be influenced by those that promote and market ETFs, and it is why expertise is required to ensure the decisions being made will work for you.
This is where our Evalesco advisers excel.
What is an Exchanged Traded Fund (ETF)?
Exchange Traded Funds (EFTs) are structure that is similar to a traditional managed fund, but one that can be traded by buying or selling on the Australian Stock Exchange (ASX).
Combining the strengths of managed funds and direct shares, ETFs offer a flexible and cost-effective investment solution suitable for all investors. ETFs strive to track the performance of a specific index or asset class closely, delivering returns corresponding to that index or asset class, minus any associated fees.
ETFs can provide straightforward, transparent, cost-effective, and adaptable investment opportunities for investors.
The different types of ETFs available
There are thousands of ETFs available globally to invest in all offering different shares, markets, investment strategies and assets. Let us take a look at the types of ETFs available:
- Country specific ETFs: These ETFs will allow you to access an entire market or group of companies with one trade. For example, the BetaShares A200 ETF allows you to access the two hundred largest businesses in Australia, whilst the iShares S&P500 ETF will allow you to access the largest 500 business in the United States.
- International ETFs: If you wanted to access global markets generally, by investing in the Vanguard International Shares ETF, it will allow you to have your investments spread across multiple countries with one trade.
- Sector ETFs: Tailor your investment focus with sector-specific ETFs, targeting industries such as banking in Australia or global sectors like healthcare, resources, infrastructure, and property.
- Dividend-focused ETFs: Designed for income-oriented investors, these ETFs prioritise regular dividend payments.
- ESG ETFs: Also referred to as sustainability ETFs, these emphasise companies with high ratings on environmental, social, and governance (ESG) criteria.
- Smart Beta ETFs: These ETFs track indices that deviate from traditional market capitalisation-based selection methods. They employ a more sophisticated approach to asset selection, considering factors beyond a company size.
- Factor-based ETFs: Factor investing involves targeting securities with specific characteristics deemed significant in explaining risk and return. Examples include value, quality, momentum, and size.
- Bond ETFs: Also known as fixed income ETFs, these offer portfolios of bonds, including various types such as Australian Government bonds, floating rate bonds, corporate bonds, and US Treasury Bonds.
Active versus passive ETFs
ETFs can either be passively or actively managed.
- Active ETFs – Actively manged ETFs do not seek to track an index but rather they try to outperform an index. Active ETF fees are generally higher due to the higher costs associated with operating an actively managed fund. Active funds don’t disclose holdings daily to keep their trades confidential.
- Passive ETFs – Aimed to solely to replicate the performance of an index before fees. These ETFs feature significantly lower operational costs as they require less ongoing management and research. Moreover, they disclose their holdings daily.
In summary, active ETFs involve active management and aim to outperform the market, whilst passive ETFs track a specific index and seek to match its performance but at a lower cost.
Benefits and disadvantages of ETFs
As Financial Advisers we outline the pros and cons of ETFs, so you can decide if they’re a good fit your portfolio.
| Benefits | Disadvantages |
| ● Diversification
● Easy access ● Transparency ● Lower costs ● Saves time ● Helps to reduce risk ● You don’t need large amounts of money to start investing in ETFs ● Flexibility of when you can trade |
● The performance is not guaranteed
● Investors can’t choose which companies are in an ETF ● Currency risk ● Liquidity risk ● Trading errors |
ETFs can be a cheap and efficient way to get into the market. However, it is best to keep in mind that many ETFs currently available invest in narrow and potentially volatile areas of world sharemarkets. When considering ETFs, it is important to note that although there may be low on-going costs these can be offset by brokerage fees on small transactions. If you are planning on investing in this strategy, please speak to your adviser or contact one of our financial advisers here.
Who are ETFs suitable for?
ETFs cater to a broad spectrum of investors. Whether you’re taking your first steps into investing or a seasoned pro aiming to diversify your portfolio, ETFs present a versatile solution. They hold particular appeal for individuals with varying risk appetites and investment aspirations, providing exposure to diverse asset classes.
How Evalesco advisers use ETFs?
At Evalesco, we build portfolios for our clients based on your goals and risk tolerance and then manage these investments for you. These portfolios are typically comprised of wholesale managed funds, separately managed accounts (SMA’s) and often include ETF’s. ETFs are used to build and maintain a client’s portfolio with a low-cost, broad exposure concept, providing targeted portfolio construction that is both effective and efficient.
Whilst Evalesco advisers can access specific types of investments by using ETFs to help their clients invest in global thematics like robotics, cybersecurity and climate change innovation.
In essence, ETFs have revolutionised the investment landscape, offering investors a diverse range of opportunities previously reserved for institutional investors or those with extensive resources.
Eager to explore the vast potential of ETFs further? Our team of experienced financial advisers at Evalesco Financial Services stands ready to assist. We offer expert guidance and personalised strategies finely tuned to align with your distinct financial objectives.
Let us empower you to make informed decisions and achieve your financial goals efficiently. Contact us today.
