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At Six Park, we believe that exchange traded funds (ETFs) are an ideal investment vehicle for our clients. In just a few trades on the ASX, it is possible to instantly and inexpensively create a truly diversified portfolio. For example, we provide our clients with international share exposure through a Vanguard International Shares ETF. It holds shares in Apple, Google, Microsoft, Facebook, GE, and Nestle, amongst 1,500 other high performing global companies – all in just one single fund.
ETFs are now one of the fastest growing investment products in Australia and the world. There are now about 200 different ETFs listed on the ASX (up from just 37 five years ago) with more than $35 billion of total funds under management. Almost $2.8 billion worth of ETFs were traded during December 2017 alone - so they are an increasingly popular investment tool for many investors.
What is an ETF?
They’re popular, they’re growing, but what exactly is an exchange traded fund? Quite simply, an ETF is a type of fund that trades on the share market, much like a share of say Telstra or BHP. Rather than investing in just one security, an ETF typically invests in a basket of assets. These assets might be shares, bonds, property, currencies or commodities, usually with a focus on a particular geography, industry or market. When you buy an ETF, you basically buy an interest in that ETF’s basket of assets.
Many ETFs are designed to track a particular market index, such as the ASX200 or S&P500 index. They do this by buying every (or almost every) share/bond/asset in their target index – usually in the same proportion that those shares/bonds/assets represent in that index. In doing so, ETFs mimic the performance of their targeted index - but with low costs and high tax efficiency.
ETFs operate as “open-ended” funds. This means that the number of units on issue is not fixed and instead increases or decreases in response to investor demand and supply. This process helps ensure that ETFs trade at or near the net asset value (NAV) of their underlying holdings. You can read more detail about how ETFs work on the ASX’s website.
The benefits of ETFs
We use ETFs across all our Six Park portfolios because they offer a range of benefits:
The risks with ETFs
As with any investment, there are always potential risks with using ETFs. These include:
At Six Park, our Investment Advisory Committee and management team spend a considerable amount of time reviewing and assessing the ETF marketplace, taking into consideration many factors including fund size, liquidity, tracking error and relative costs. Our ETF selections are regularly reviewed to ensure they represent the best available investment option for our clients.
As a Six Park client, you will be invested in a portfolio of high-quality ETFs that are carefully selected by our expert investment team to match your recommended asset allocation. Our portfolio management fees start at just $50 a year for a $10,000 investment.