Gearing into growth on the ASX

Exchange Traded Funds (ETFs) are one of the fastest-growing products in the investment world, for good reason. ETFs offer in one listed stock instant access to the ‘beta’ (market performance) of a range of different asset classes, market indices, portfolios and strategies. They are cheap and flexible products that give individual investors a simple means of diversifying their portfolio.

In the United States, a record $243 billion poured into equity ETFs in 2014. Currently about US$20 billion a month flows into equity ETFs, although that flow did drop to a $2.7 billion trickle in August – down from $23 billion in July – as the China correction hit the markets.

In Australia, the ETF sector has grown from a $48 million initial listing of three funds in 2001 to a $19 billion sector offering 127 funds.

Get exposure to global growth

In particular, Australian investors have used international ETFs to gain access to international equities, both US and non-US, to get exposure to global growth. With one stock trade they can establish international diversification. Investors can lock-in this exposure either in a broadly diversified way, or honing the exact exposure they want – for example, by buying developed-market, emerging-market, regional or single-country exposure.

An international ETF gives an investor instant diversification into part of the 98.2 per cent of the ‘investable’ stock market universe that is not in Australia. Also, the ETFs can pick up exposures that the Australian does not have, for example large-scale telecommunications suppliers, technology, or large-cap drug companies.

This information is correct as at 01 July 2015.