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ETF investment strategiesWe help you to create your perfect ETF strategy
ETFs are increasingly popular investment vehicles that provide opportunities for investors to cover a broad range of sectors. A good ETF strategy offers considerable flexibility for a diverse investment portfolio.
What’s a strategic asset allocation?
Asset allocation is the distribution of invested capital across multiple asset classes (stocks, bonds, real estate, commodities, etc.) and markets. Based on the portfolio theory of US economist Harry Markowitz, this investment strategy rests on the assumption that it can used to be optimize the risk and return of a portfolio.
Because different asset classes do not necessarily move in parallel, i.e. they have a low correlation with each other, it is possible to offset the risk of any individual asset class with this strategy. By spreading capital across multiple markets and sectors, risks associated with individual countries and industries may be better distributed. UBS ETFs offer you the opportunity to implement this ETF strategy cost effectively.
What are the advantages of cash management?
The multi-market maker approach enables UBS ETFs to have a high level of liquidity at all times, both on the stock exchange and in OTC trading. For this reason, they are particularly suitable for short-term cash management.
Until a final investment decision is made, institutional investors are not only able to take advantage of short-term market developments but can do so at low transaction cost and without having to change the portfolio structure. If liquidity is needed, an individual position can be quickly liquidated without excessive slippage by selling the UBS ETFs.
What are the characteristics of a core/satellite strategy?
In a core/satellite strategy approach, invested capital is divided into a core and smaller individual investments (satellites). The bulk of the capital, the core investment, is invested in broadly diversified investments designed to achieve a stable market return with low risk and with the least possible deviation from the benchmark. That is why standard or blue chip indices are particularly suitable for a core investment. UBS ETFs offer a very straightforward and inexpensive way to implement this approach.
The smaller portion of the capital is invested in a flexible manner in multiple satellite investments. The most suitable investments using this approach are those that have the potential to achieve above-average returns, complementing the core investment.
They include investments in:
- specific regions (e.g. emerging markets)
- sectors (e.g. infrastructure)
- strategies (e.g. mid-caps)
- and asset classes (e.g. commodities)
Because they can be traded both on the stock exchange and over the counter in a quick and cost-effective manner and are available on a wide range of indices, UBS ETFs are suitable for both the core and the satellite component of a core/satellite portfolio.
Alternative to futures
What alternative to futures do UBS ETFs provide?
UBS ETFs offer an interesting alternative for institutional investors prohibited from tracking indices using futures. Due to their high liquidity and smaller denominations in comparison with futures, UBS ETFs provide a flexible and cost-effective alternative even with smaller unit sizes. In contrast to futures rebalancing, no roll costs are incurred as ETFs have no term limit. Similarly, in contrast to futures, no margin is required.
Are UBS ETFs also suitable for arbitrage transactions?
Yes. Due to their high liquidity, UBS ETFs are also suitable for arbitrage transactions, where institutional investors identify and exploit small price differences driven by supply and demand. Arbitrage transactions help to keep these price differences in equilibrium and so ensure market efficiency.