INVESTOR INFORMATION

ETFs EXPLAINED

WHAT ARE ETFs?

An ETF is a pooled investment fund which can be bought and sold on a stock exchange.

  • ETF share prices fluctuate all day as the ETF is bought and sold. In comparison, mutual funds only trade once a day after the market closes
  • ETFs offer low expense ratios and fewer broker commissions than buying the stocks individually.
  • An ETF is a type of fund that holds multiple underlying assets, rather than only one like a stock. Because there are multiple assets within an ETF, they can be a popular choice for diversification.

TYPES OF ETFs

Today there are over 8000 ETF’s globally. Here are some of the lesser-known corners of the ETF universe.

Thematic ETFs:
Thematic ETFs are built around long-term trends such as climate change or rapid urbanization. By having more tangible focus points, these funds can also appeal to younger generations of investors.

Contrarian ETFs:
In a healthy market, there can be a variety of different positions being taken by investors. Contrarian ETFs help to make this possible, allowing investors to bet against the "herd".

Factor-based ETFs:
This approach uses a rules-based system for selecting investments in the fund portfolio, based on factors typically associated with higher returns such as value, small-caps, momentum, low volatility, quality, or yield.

Global Macro ETFs:
Some ETFs are designed to mimic strategies used by hedge fund managers. One example of such a strategy is global macro, which aims to analyze the macroeconomic environment, while taking corresponding long and short positions in various equity, fixed income, currency, commodities, and futures markets.

Global Macro ETFs:
Some ETFs are designed to mimic strategies used by hedge fund managers. One example of such a strategy is global macro, which aims to analyze the macroeconomic environment, while taking corresponding long and short positions in various equity, fixed income, currency, commodities, and futures markets.

Commodity ETFs:
There are ETFs that track gold or oil, sometimes even storing physical inventories. Interestingly, however, there are commodity ETFs for even more obscure metals and agricultural products, such as zinc, lean hogs, tin, or cocoa beans.

ETF APPLICATIONS

There are 10 familiar ETF applications, spanning from simple (ETFs for core application) to complex (ETFs as risk management overlays).

Tactical Adjustments:
Over- or underweight certain styles, regions, or countries on the basis of short term views. 72% of Institutions use ETFs for this purpose.

Core Allocation:
Build a long-term strategic holding in a portfolio. 68% of Institutions use ETFs for this purpose.

Rebalancing:
Manage portfolio risk in between rebalancing cycles. 60% of Institutions use ETFs for this purpose.

Portfolio Completion:
Fill in gaps in a strategic asset allocation. 57% of Institutions use ETFs for this purpose.

Liquidity Management:
Maintain exposure in a liquid investment vehicle to meet cash flow needs. 54% of Institutions use ETFs for this purpose.

Transition Management:
Facilitate manager transitions with ETFs. 44% of Institutions use ETFs for this purpose.

Risk Management / Overlay Management:
Mitigate market exposure while refining a long-term view. 42% of Institutions use ETFs for this purpose.

Interim Beta:
Maintain market exposure while refining a long-term view. 37% of Institutions use ETFs for this purpose.

Cash Equitization:
Put long-term cash positions to work with ETFs to minimize cash drag. 37% of Institutions use ETFs for this purpose.