ETFs can facilitate multiple strategies

An economist has moved to dispel the myth that exchange traded funds (ETFs) are instruments allowing access to equities indices only, insisting instead these structures can be used to enable a number of different investment strategies.

“Most people when they think of ETFs, to the extent they know anything about ETFs, think they track the ASX200 or the S&P500 in the US so it’s like an equity ETF,” BetaShares chief economist David Bassanese told delegates at the recent Australian Shareholders Association Conference 2017 held in Melbourne.

“But there are also a whole bunch of other ETFs. You can get ETFs now that track bonds so if you’re interested in buying government bonds or corporate bonds you can get an index that tracks the Australian bond market or the global bond market,” he explained.

Bassanese added ETFs also existed for investors interested in currency or commodities such as gold.

Apart from servicing investors wanting to allocate funds to a particular asset class Bassanese pointed out secular themed investing can also be satisfied via ETFs.

“In terms of set and forget investing there are different secular themes to exploit, for example technology. We have an ETF that tracks the Nasdaq100,” he said.

“We also have global sector ETFs covering energy companies, healthcare companies, food companies, global gold mines and global banks.

According to Bassanese, using ETFs to fulfil secular thematic investing strategies is more prudent than investing in individual sector stocks due to the ability of an ETF to provide greater diversification.

“For example with healthcare you can go and buy one or two healthcare stocks but in doing so you’re taking a lot of stock specific risk,” he said.
“Instead what you can do is buy an ETF that gives you access to the top 60 global healthcare companies around the world.”

In regard to SMSFs, Bassanese believes ETFs provide a good investment fit.

“An ETF to my mind is a no brainer for an SMSF portfolio. They’re generally pretty transparent, they’re easy to buy, easy to sell, and generally low cost,” he noted.

“So really it’s a no brainer at least for a component of an SMSF portfolio.”


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