Exchange-traded funds (ETFs) took centre stage just 25 years ago, and since then they have democratised the way we invest and the opportunities available to build wealth.
One benefit of ETFs that is often overlooked is transparency, and the role it can play in supporting investors to truly take ownership of their portfolios.
Alongside being low-cost and offering investors simple diversification, ETFs have one benefit that should be top of mind for all investors: transparency.
Unlike other investment products such as exchange-traded managed funds, commonly referred to as active ETFs, or managed funds, ETFs provide investors with the ability to review and verify their holdings on a daily basis.
In comparison, other products tend to have a lag in the reporting of their underlying positions of between four to six weeks, if not longer. As a result, investors do not have timely access to the full details of their investment and could be unwittingly holding stocks that don’t align to the fund they thought they were invested in.
The unique transparency of ETFs allows investors to make informed portfolio decisions in real time. For example, investors can access the holdings of an ETF by simply navigating to the issuer’s website and downloading the daily portfolio holdings for the ETF in question. The ability for investors to review their portfolio holdings alongside net asset value and price, can help support them when making timely, strategic investment decisions.
ETF transparency gives investors access to the information they need to understand exactly what they are buying. That’s why when it comes to ETFs, complete transparency is not a luxury, it’s a given.
In the first quarter of 2018, global investment markets reminded us of their volatility, and with markets set to remain that way1 for the foreseeable future, it’s important that investors take ownership of their portfolios by leveraging the unique benefits of ETFs.
In particular, ETF transparency and the ability to take a look ‘under the hood’ at an individual stock level allows investors to work together with their financial adviser or wealth professional to truly understand their portfolio holdings, the overall cost of their investments and make informed, timely decisions. This transparency means investors have few excuses to not know exactly what they are holding in each ETF.
Taking advantage of the transparent structure of ETFs can help investors take charge of their investment goals. Transparency provides investors with the tools to clearly understand where their ETF portfolio is invested. Additionally, it is important for investors to capitalise on this transparency to ensure the stocks held in each fund align to their stated investment strategy. Understanding the relationship between stocks held and the fund’s investment strategy can then allow investors to ensure they are paying the correct fees for the exposure they have purchased. Occasionally investors may find they can access the same or similar exposure at a lower cost, or that more closely aligns to their investment goals. Access to this information enables investors to have constructive and informed discussions with their wealth professional and truly take charge of their investments.
When it comes to asset allocation and portfolio diversification we know that ETFs can offer investors a unique set of benefits. In addition to an ETF’s ability to spread investment dollars across many individual securities, the daily publication of portfolio disclosures can provide investors with a clear understanding of every stock or sector in their ETF portfolio.
For tactical asset allocation, or as the building blocks for a wider portfolio, this level of transparency can be crucial in setting the right strategy to meet long-term investment goals.
Put simply, by investing in ETFs, investors have the opportunity to take the lead and make more informed investment decisions to shape their portfolios with greater accuracy.
Meaghan Victor is head of SPDR ETFs, Australia, State Street Global Advisors.