Easy diversity

Exchange Traded Funds (ETFs) are one of the fastest growing investment products in the world, offering investors a simple and cost-effective way to achieve diversification in their investment portfolios. Burrell can help you determine if ETFs are a sound investment strategy for your individual circumstances, and which one best suits your financial objectives.

What is an ETF?

In simple terms, ETFs blend the benefits of both managed funds and shares. They offer efficient, low-cost diversification, combined with flexibility and liquidity.

ETFs can be bought and sold on a stock exchange like shares. And, like managed index funds, they contain a diversified portfolio of securities designed to track specific indices. For example, if you invest in the SPDR 50 Fund, you get a slice of the 50 stocks in the S&P/ASX 50 Index, and percentage movements in the index will be mirrored by percentage changes in the price of the ETF.

Some indices are narrow, tracking a single market sector with minimal holdings, while others are as broad as the entire market with hundreds of holdings. This means investors can use ETFs to gain the exposure and diversification they want, quickly and simply.

Benefits of ETFs

Benefits of investing in ETFs include:

• Flexibility - shares can be bought and sold at any time during market hours
• Diversification - managed index funds, allowing an investor to gain a particular exposure by asset class, market capitalisation, country and sector
• Liquidity - like shares can be traded on the open market, giving investors the ability to quickly respond to changing market conditions
• Reduced brokerage - compared to paying multiple brokerage on individual shares
• Low management fees - compared to managed funds
• Potential for minimal tax impact - certain ETFs may have few capital gains and losses because of typical low turnover in the underlying portfolio

Risks of ETFs

ETFs carry the usual investment risks including:

• Market risk - if the market falls or a sector performs poorly the ETF is likely to fall.
• Liquidity risk - if you can’t sell your ETF for a fair price.
• Currency risk - if you hold an international ETF.