Investing in ETFs and other ETPs

There are a wide variety of ETFs and other ETPs that can provide exposure to the Australian market.

Traditionally ETFs have provided broad market exposure to companies weighted by market capitalisation. For example, the S&P/ASX 200. Australian equity ETFs provide exposure across small, mid-cap and large cap companies listed on ASX as well as exposure to certain sectors and strategies. Sector ETFs can assist investors to build their portfolios to allow for increased exposure to certain industries e.g. technology or financials while still achieving a broad diversification across companies.

Investors can also access strategy oriented ETFs such as a high dividend fund, responsible investment or stocks focused on volatility, momentum, quality and value.

There are a wide variety of ETFs and other ETPs that can provide exposure to the global market.

Global ETFs can assist investors to diversify their portfolio by accessing investments otherwise not available in Australia.  

Exposure to global markets via ETFs can be to a single country such as U.S or China, to a specific region such as Europe or Asia Pacific or to specific markets such as developed or emerging markets. There are also global sector ETFs available that may assist investors access sectors that may be under represented within the Australian market e.g. healthcare.  

Global equity ETFs provide exposure across small, mid-cap and large cap companies as well as exposure to certain sectors and strategies. Sector ETFs can assist investors to build their portfolios to allow for increased exposure to certain industries e.g. technology or financials while still achieving a broad diversification across companies.

Investors can also access strategy oriented ETFs such as a high dividend fund, responsible investment or stocks focused on volatility, momentum, quality and value.

The global ETFs you choose may not be hedged against currency movements and may also include additional taxation requirements. Investors should review the risks associated with global ETFs before investing.

Investors can access a wide range of commodities in the form of ETFs or structured products designed to track the performance of an underlying physical commodity or commodity index. This allows investors to gain direct exposure to the underlying asset without the need to take physical delivery of the commodity or trade futures contracts.

Investors should consider additional risks associated with the structure of such investments.

Commodities can include precious metals such as gold and silver, energy commodities such as oil and gas and agricultural commodities such as wheat and livestock. Commodity ETFs may not be hedged against currency meaning fluctuations in the AUD exchange rate can affect the value of the portfolio.  

Investors should refer to the PDS to determine if the ETF is hedged against currency.

Fixed income ETFs can help investors access a more reliable income stream with typically less price volatility than other classes such as shares. This is why investing in this asset class is often referred to as defensive. Typically a fixed income ETF will distribute regular income, but this is conditional on performance.

ETFs and other ETPs that provide exposure to fixed income securities will hold a portfolio of debentures or bonds which can be issued by domestic or foreign governments, semi-governments or corporates. The ETF or ETP may hold debentures or bonds with various maturity dates, risk factors and credit ratings.

Investors can access an ETF that aims to achieve interest rates that are competitive with 'at call' bank deposits and term deposits without opening a bank account or locking up capital for extended period.

Unlike ETFs that hold fixed rate bonds, the capital value of a cash ETF will not decline in a rising interest rate environment.

Cash ETFs can assist investors achieve a core cash allocation in a portfolio and/or assist in providing a short term solution between investment decisions.

Investors should consider the risks associated with this type of ETF prior to investing.

Currency ETFs can assist investors to diversify portfolios without needing to access foreign exchange markets, currency brokers or open a foreign currency bank account. Currencies are historically a non-correlated asset class that can be used to reduce the overall volatility of an investment portfolio.