ETFs were originally conceived to help provide pricing transparency for institutional investors. But as the industry has exploded in size, so too have the ways that investors use these flexible funds to address critical portfolio needs. Investors of all types and sizes are employing diverse strategies to construct and manage portfolios using ETFs.
Broaden Asset Allocation
ETFs offer investors a sophisticated tool to gain exposure to broad and targeted market segments covering a wide range of asset classes, equity market capitalisations, styles and sectors. This enables investors to build customised investment portfolios consistent with their financial needs, risk tolerance and investment horizon.
Strategic Asset Allocation
Strategic asset allocation is a target allocation of asset classes you expect to have in place for a long period of time. The target allocation is expected to remain the same and the portfolio is rebalanced to the original allocations when they deviate significantly from the initial settings due to differing returns from the various assets. Strategic asset allocation looks more at the overall risk objective of the portfolio, and therefore takes a long-term view.
Whether you’re looking to cover the broad global equity market, the total bond market, or take positions in specific countries, commodities or real estate, there’s likely an ETF—or ETFs—to help meet your objectives.
Tactical Asset Allocation
Tactical asset allocation is a short to intermediate-term view that looks for investment opportunities in the market. It allows investors to make real-time adjustments to their long-term asset allocation to take advantage of short-term tactical opportunities.
Tactical adjustments might include increasing allocations to markets and sectors that have become more attractive, or decreasing exposures to less attractive ones. Investors can also easily reverse these tactical moves once the opportunities and risks have run their course.
ETFs are an efficient tactical asset allocation tool as they offer intra-day trading at typically lower costs.
A core-satellite strategy seeks to replicate the broad market return in the “core” portion of a portfolio, and uses a “satellite” strategy to find alpha opportunities and add diversification using non-core market exposures.
Broad, market-based ETFs can be used as the core of an investment strategy. Sector, commodity-based, or other smart beta or active ETFs can be used to add a cost-effective satellite strategy to a portfolio to complement the "core". This approach allows an investor to customise their exposure and risk to potentially enhance returns.
Access Hard-to-Reach Markets
ETFs have democratised investing, giving individual investors the same access to investment solutions as institutional investors.
The ETF wrapper has opened up new doors to:
And many more
ETFs offer expanded market exposures in a convenient, portable investment instrument.
There are a number of portfolio management options using ETFs:
ETFs are a helpful tool for rebalancing portfolios and keeping them on track to meet long-term strategic asset allocation targets.
ETFs can easily be used to refine portfolio strategy and adjust holdings in response to shifting market conditions or an investor's changing needs.
Year-end can be an apt opportunity to rebalance portfolios while taking advantage of possible unrealised losses.
The broad array of ETFs available today creates risk management approaches for individuals and smaller institutions that only large institutional investors could access previously.
Sector ETFs can also be a useful tool for investors, allowing them to hedge their individual stock investments by effectively diversifying their risk exposure across the broader equity market.
ETFs can be easily employed to help investors minimise their tax consequences. Because ETFs usually track market indexes, turnover is generally low. Typically, lower turnover results in fewer capital gains and thus lower taxes. Investors typically don’t realise capital gains from other unitholder redemptions.
When investors change asset managers, they’re often concerned with how to preserve equity exposure during the transition. One way to achieve this goal is to liquidate the portfolio and then reinvest the assets in an ETF with a high correlation to the benchmark of the active manager. Once a new manager is chosen, the investment professional can sell the ETF shares to fund the purchase of this exposure.
Issued by State Street Global Advisors, Australia Services Limited (AFSL Number 274900, ABN 16 108 671 441) ("SSGA, ASL"). Registered office: Level 14, 420 George Street, Sydney, NSW 2000, Australia · Telephone: 612 9240-7600 · Web: www.ssga.com.
State Street Global Advisors, Australia Services Limited (ASL) (AFSL Number 274900, ABN 16 108 671 441) is the issuer of interests and the Responsible Entity for the ETFs which are Australian registered managed investment schemes quoted on the AQUA market of the ASX or listed on the ASX. This material is general information only and does not take into account your individual objectives, financial situation or needs and you should consider whether it is appropriate for you. You should seek professional advice and consider the product disclosure document, available at www.ssga.com/au, before deciding whether to acquire or continue to hold units in an ETF. This material should not be considered a solicitation to buy or sell a security. ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETF's net asset value. ETFs typically invest by sampling an index, holding a range of securities that, in the aggregate, approximates the full index in terms of key risk factors and other characteristics. This may cause the fund to experience tracking errors relative to performance of the index. Investing involves risk including the risk of loss of principal. Diversification does not ensure a profit or guarantee against loss. Holdings and sectors shown are as of the date indicated and are subject to change. This information should not be considered a recommendation to invest in a particular sector or to buy or sell any security shown. It is not known whether the sectors or securities shown will be profitable in the future. Sector ETF products are also subject to sector risk and non-diversification risk, which generally results in greater price fluctuations than the overall market. SPDR and Standard & Poor's® S&P® indices are trademarks of Standard & Poor's Financial Services LLC and have been licensed for use by State Street Corporation. The Dow Jones Global Select Real Estate Securities Index is a product of S&P Dow Jones Indices LLC and has been licensed for use by State Street Global Advisors, ASL. MSCI indices, the property of MSCI, Inc. ("MSCI"), and ASX®, a registered trademark of ASX Operations Pty Limited, have been licensed for use by State Street Global Advisors, ASL. SPDR products are not sponsored, endorsed, sold or promoted by any of these entities and none of these entities bear any liability with respect to the ETFs or make any representation, warranty or condition regarding the advisability of buying, selling or holding units in the ETFs issued by State Street Global Advisors, ASL. State Street Global Advisors Trust Company (ARBN 619 273 817) is the trustee of, and the issuer of interests in, the SPDR® S&P 500® ETF Trust, an ETF registered with the United States Securities and Exchange Commission under the Investment Company Act of 1940 and principally listed and traded on NYSE Arca, Inc. under the symbol "SPY". State Street Global Advisors, ASL is the AQUA Product Issuer for the CHESS Depositary Interests (or "CDIs") which have been created over units in SPY and are quoted on the AQUA market of the ASX. The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without State Street Global Advisors, ASL's express written consent.