Exchange traded funds (ETFs) enable investors to fill up the gaps in their portfolios and match a benchmark’s asset allocation, until the portfolio can be rebalanced to the desired allocation. The result is an increase in the diversification of a portfolio that's heavily weighted towards one part of the market. Portfolio completion through ETFs can be deployed either strategically or tactically, and can be useful for an investo rwho may seek to quickly gain exposure to specific sectors, styles or asset classes without having to obtain the prerequisite expertise in these areas.
Access to Niche Sectors
Some niche asset class segments, such as small capitalisation companies in emerging markets, are not widely available in pooled index funds and futures contracts are largely non-existent. This is where the breadth of ETFs on offer can be advantageous, with thousands of indexes available: at the end of December 2018, there were 7,199 exchange traded products (ETPs - which include ETFs and exchange traded notes), available globally3, providing exposure to almost every asset class an institutional investor could want. Beyond the core exposures to major indices, investors can use ETFs to access sectors and sub-sectors.
While accessing specific segments of the market are part of a portfolio completion strategy, institutional investors that would like to access difficult-to-reach market segment may also like to consider an asset class exposure strategy.