Today’s global markets offer investors a far broader range of opportunities and strategies than ever before. That means more choice for those investors able to access these markets. Today’s markets can also be volatile, however. Flexibility in terms of strategy and implementation can therefore be an advantage. ETFs may be excellent solutions on both these counts.
Flexible, transparent and cost-effective
Consider flexibility. Because they are listed on exchanges and are generally liquid, ETFs can be bought and sold at will at the brokerage cost. ETF investors can therefore react quickly to market developments, and use ETFs for sophisticated trading strategies.
ETFs are also transparent. Share prices are updated constantly during the trading day, and ETFs publish their holdings at the end of each session. Investors therefore always have current information in terms of the price and holdings of their fund.
Most ETFs track indices, which means investors can use them to gain easy access to entire markets. Today there are ETFs to cover virtually any geography, asset class, sector or even theme. That makes them excellent means for adding diversification to a portfolio, implementing a strategic asset allocation, or executing on short-term, tactical asset allocation decisions.
Since ETF shares are tied to a basket of securities, they offer a layer of security – investors are not exposed to the insolvency of the ETF provider. ETFs generally also have low fees, and so are not just a flexible investment tool, but also a cost-effective one.
An attractive asset
This is not to say they pose no risks. Like any investment, ETFs are exposed to valuation risk: prices can just as easily go down as up. ETF investors are also exposed to the bid/ask spread. And there are risks related to how well an ETF is managed, which can affect liquidity or the accuracy with which an ETF tracks its index. Having a reliable provider is important.
These risks aside, many investors have found ETFs to be an excellent addition to their portfolios, not least because of their versatility.
It’s always good to have an all-rounder on your team.