While you may not have heard of them before, you’re likely to be hearing more about Exchange Traded Funds (ETFs) in the near future. ETFs are now regarded as one of the fastest growing investment products in the world as they offer investors a simple and cost effective way to diversify their investment portfolios.
ETFs are bought and sold on the stock exchange just like shares. Typically, they track an index like the Australian share market index or any number of international indices. They are an extremely popular method of investing in the US and are starting to gather real interest in Australia.
At 5 Financial, we have been using ETFS for the purchase of shares for some time now. This has enabled us to diversify clients’ portfolios without it costing them an ‘arm and a leg’.
One of our frustrations – however – has been the inability of any of the ETF providers to offer coverage of a fixed income or bond index. This has meant we needed to either go direct to the fixed interest market and purchase the bonds directly or use a managed fund. As we have an aversion to most managed funds on the market due to their poor performance combined with high cost, we have been reluctant to use them as an alternative.
In some case we have purchased bonds directly for our clients, but with a minimum entry allocation of $50,000, it is harder to achieve a diversified portfolio of bonds.
But alas! Our frustrations are over as we recently attended the launch of a new fixed income exchange traded fund (ETF).
As you know, we are attracted to investments with transparency and simplicity as their hallmarks and these ETFs certainly have these features. Combined with the fact that they are priced at less than half the cost of a managed fund, and for clients of 5 Financial, we look forward to introducing you to them at your next review.
We believe these ETFs can be very useful in many people’s portfolios. They are particularly suitable for clients seeking a broad exposure to Australian bonds and who have a long term investment horizon.
Please note, the information contained in this article is of a general nature and it does not take into account your specific situation and objectives. As always, we strongly recommend you obtain expert advice before acting upon any information on our website.
Get an up-to-date picture of the ETF landscape, or find out if and how ETFs could be beneficial to you regarding your particular situation and goals. Book a consultation with one of our financial advisers to learn more. An initial consultation is free and without obligation.