Ease the burden, spend more time doing what you do best

The role of most Financial Planners has widened to include advice on domestic and international listed managed funds and direct equities.  Due to this ever-expanding responsibility, many Financial Planners do not have the time or resources to concentrate on single stocks in international markets.

There is now a simple solution "Exchange Traded Funds" (ETFs).

Portfolio managers are embracing ETFs as they can add value and increase diversification through international markets, allowing them to concentrate on the markets that know.

ETFs allow the Financial Planner to concentrate on the Australian stocks they are familiar with, whilst still accessing opportunities in the other 98 percent of the worlds markets.  More importantly, diversifying your client’s portfolio spreads the risk, may help increase returns and can be more cost effective.   ETFs have management expense ratios (MERs) as low as 0.10 percent compared to unlisted managed funds with MERs of 2 percent or more.

For investors seeking to gain or reduce country, regional sector or style exposure, ETFs possess characteristics that make them good alternatives to futures and stock based portfolios.  ETFs are not derivatives.  They trade and settle like single shares and are backed by baskets of securities designed to track indices.  ETFs offer diversified exposure and lower expense ratio than traditional funds.

Investors are increasingly using ETFs to gain exposure to global benchmarks.

For Australian ETFs that cover Australian benchmarks such as the ASX/S&P 50, 200 and the Listed Property index visit www.asx.com.au/etfs

At the end of 2004 there were 336 ETFs worldwide with assets of US$310 billion.


How cost effective are ETFs?

Below is a time line demonstrating the effects of fees on an investment portfolio of AUD$50,000 over a 5 year period.  Assuming there is growth of 6 percent.

Traditional Managed Fund
Average 2.20 percent per year

Year 

0

1

2

3

4

5

  $50,000  $51,900 $53,919  $55,919 $58,044 $60,250

Exchange Traded Fund Portfolio
Average 0.25 percent per year
 
In this scenario below, by investing in ETFs rather than a traditional managed fund  there is a saving of  $5,875 or 10 percent. 

Year 

0

1

2

3

4

5

  $50,000  $52,875 $55,915 $59,130 $62,530 $66,125