Implemented Portfolios primarily uses Exchange Traded Funds (ETFs) to build portfolios and target exposures to the asset classes outlined in the Investment Program.
In their simplest form, ETFs are a collection of securities designed to track the performance of a specific index. For example, you can buy shares in an ETF that tracks the performance of the S&P/ASX 50, an index that tracks the largest 50 companies listed on the Australian Stock Exchange, weighted for the size of each company.
ETFs have grown rapidly both internationally and here in Australia as investors have been attracted to their low cost, transparent, tax efficient characteristics, and there are funds that cover all asset classes and markets around the world.
The popularity of ETFs continues to grow rapidly with global assets managed at more than A$9 trillion (Jul-20), as investors continue to recognise their many advantages.
ETFs are bought and sold on exchanges around the world and are regularly represented in the most liquid securities traded. Even in periods of market disruption, ETFs continue to provide liquidity and an important price discovery function.
Active managers that charge higher generally don’t outperform the indices to which they are benchmarked, or that are tracked by ETFs. It has been estimated that investors in the United States have collectively saved hundreds of billions of dollars by switching to the much lower fees in ETFs than are charged by many traditional managed funds.
Many people think of ETFs as simply a way to access the share market, though there is a much wider choice of exposures available to investors. The reality is that ETFs cover a wide range of asset classes and can be used effectively to build a whole portfolio. The largest ETFs in the world include shares, but also bonds and commodities.
ETFs provide efficiencies that generally mean a better after-tax outcome for investors when compared to unit trust based managed funds.