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					                                         Herald Sun
                                         Monday 6/7/2009                                               Brief: TRENDS
                                         Page: 31                                                      Page 1 of 3
                                         Section: Business News
                                         Region: Melbourne Circulation: 518,000
                                         Type: Capital City Daily
                                         Size: 847.62 sq.cms.
                                         Frequency: MTWTFS-




Funds branch out
A new style of
                                         stocks in the chosen market or
                                         index.
                                                                                   you are getting the latest buy and
                                                                                   sell prices, not just once a day like
                                                                                   you do for an unlisted managed
                                           ETFs are also relatively cheap          fund," Mr Bradbury says.
                                         because they are not actively man-
investment                               aged, so the management fee
                                         smaller.
                                                                              is     As recently as 2005, there were just
                                                                                   a few hundred ETF trades on the
                                                                                   Australian stock exchange monthly.
                                           In Australia, they have "fallen         Now there are thousands.
                                         through the gap" between financial
fund is                                  advisers and stockbrokers but have
                                         managed to make inroads on their
                                                                                    "ETFs have been going gangbus-
                                                                                   ters on all the major exchanges
                                         own with investors.                       globally," Mr Bradbury says.
grabbing                                   "They've actually been offered in
                                         Australia since 2001," says Phillip
                                                                                     "Institutional investors, advisers
                                                                                   and brokers are all investing in ETFs,
                                         Gray, a researcher for investment         as well as self-directed investors."
attention                                product ratings agency Morning-
                                         Star. "It's not altogether clear why
                                         ETFs haven't been more popular so         CASE STUDY
                                         far but there are several likely          investor Geoff Hardy, from Melton,
from both                                reasons.
                                           "First, ETFs appear to have fallen
                                                                                   says: "You don't need a broker or an
                                                                                   adviser to tell you that one share in
                                         between financial advisers most fam-      an ETF gives you instant diversifica-
novice and                               iliar with managed funds but not
                                         fully geared up to dealing with share
                                                                                   tion."
                                                                                      Mr Hardy, a plasterer by day, had
                                         markets, and stockbrokers still get-      been hearing and reading about the
long-time                                ting to grips with an investment that
                                         picks stocks for them."
                                                                                   great long-term investment pro-
                                                                                   spects offered in the high-growth
                                                                                   BRIC economies of Brazil, Russia,
                                           ETFs also don't pay upfront or
                                                                                   India and China.
investors, as                            continuing commissions to financial
                                         planners and advisory groups, so you
                                         probably won't be hearing too many
                                                                                     "So I looked around and decided
                                                                                   to buy a few shares in a BRIC ETF.
                                         advisers recommending them.
Jason Bryce                                "However, now it seems to be
                                         brokers recommending them that is
                                                                                     "That one little shareholding gives
                                                                                   me a little foothold in those high
                                         driving a bit of interest in exchange     growth economies," he says.
reports                                  traded funds," Mr Gray says.
                                           One financial adviser who has been
                                                                                     Mr Hardy has since bought into an
                                                                                   ETF that holds the top listed stocks
                                                                                   in the Unityed States.
                                         recommending ETFs to his clients is
                                         John Hewison. He has had two ETFs           "I don't have many shareholdings
                                         on his list of recommended invest-        or many investments but with an
                                         ments for two years.                      ETF I feel I have some diversifica-
                                           "The two biggest advantages that        tion, which is what they all tell you to
                                         an ETF has is that if there is a market   strive for.
                                         correction and a rush on redemp-            "I wanted to have a bit of money
                                         tions, the investors simply sell their    invested offshore and the ETFs allow
      FOR a low-key, low-fee invest-     ETF shares on the market," Mr             me to do that pretty easily and
       ment, exchange traded funds       Hewison says.                             cheaply."
       are attracting a lot of            "An unlisted fund can be faced             ETFs also have good liquidity: they
       attention.
  ETFs are passively managed index       with having to find the money to          are listed entities in their own right,
                                         repay the investors and may have to       so can be bought and sold easily.
funds that track the performance of      sell assets for a low price to do so.
a stock market by owning shares in                                                   Liquidity in ETF shares is pro-
most, if not all, the stocks listed in     "The other big advantage of an          vided by two "market makers" which
the index.                               ETF is the dramatically lower cost."      are appointed by the ASX.
  Just a few years since their intro-                                                These market makers agree to buy
duction to Australia there are 27        COST ADVANTAGE                            and sell ETF shares within a pre-
ETFs listed on the Australian Secur-                                               scribed maximum spread based on
ities Exchange, including six funds      Fees tend to be less than those           the the current ETF share price.
listed in the past three months.         charged by an actively managed              Citigroup and Susquehanna are
   While ETFs are listed on the Aus-     fund and this is an advantage for         the stock exchange's designated
                                         many investors.                           market makers.
tralian share market, they typically       Some ETFs charge fees as low as
offer an investment exposure to          0.09 per cent a year, although most         iShares' Mr Bradbury says: "You
particular regions or countries, such    charge in the 0.4-0.7 per cent range.     can trade an ETF intra-day, unlike a
as Europe, the US, Asia, China and                                                 managed fund where you only get
the "BRIC" economies of Brazil,            Their structure is generally much       one opportunity to trade in a day and
Russia, India and China.                 more transparent: you know what           you may not even know for sure what
  There are ETFs that hold stocks        the fund is investing in all the time.    price you are coming in at.
only in the world's top listed compa-      "Basically they are an index fund         "An ETF share price goes up and
nies and ETFs that hold stocks only      that you can buy and sell on the          down like the market and is totally
in smaller companies.                    exchange," says iShares Australia         transparent.
  These funds provide instant diver-     spokesman Tim Bradbury.                     "The other major differentiating
sification through one transaction.        iShares is the dominant player in       factor with an ETF is the choice.
One share in an ETF may give             the ETF market in Australia.              There is a great range of different
exposure to hundreds of individual         "They price throughout the day, so      ETFs offering exposure to a whole
                                     Copyright Agency Limited (CAL) licenced copy                                     Ref: 53773437
                                         Herald Sun
                                         Monday 6/7/2009                                          Brief: TRENDS
                                         Page: 31                                                 Page 2 of 3
                                         Section: Business News
                                         Region: Melbourne Circulation: 518,000
                                         Type: Capital City Daily
                                         Size: 847.62 sq.cms.
                                         Frequency: MTWTFS-



range of ditterent markets."      siderable benefits it has over man-            in developed-world market
  Research firm Investment Trends aged funds."                                   indices, such as the S&P
recently reported that ETFs were                                                 500 index of the biggest US
growing in Australia.
  "We are finding very, very rapid
growth at the moment in ETFs off a
                                           WHERE                                 companies, or the Russell
                                                                                 2000 index of the smallest
very low base and the accelerating
growth is being driven by high-net-        TO INVEST                             companies.
                                                                                    The third group provides
worth investors," Investment                                                     exposure to a number of
Trends principal Mark Johnston             THERE are three major
says, adding that the total number of                                            developed and developing
ETF investors is likely to double this     groups of exchange-traded             Asian markets, such as the
year to 33,000.                            funds available to local              top 25 companies on
  "Competition is expected given           investors.                            Chinese share markets.
the phenomenal growth trend over-
seas," Mr Johnston says.                     The first group tracks                 But this year new funds
   "The number of ETF providers            segments of the Australian            investing in the defensive
entering the market this year con-         share market such as the 50           sectors of health care,
firms our view that Australia's ETF        biggest listed companies,             telecommunications and
sector will continue to grow to a          the S&P/ASX200 index or               consumer goods have been
significant level as investors and
intermediaries become more familiar        the Listed Property index.            launched for Australian
with the ETF product and the con-            The second group invests            investors.




 ON THE OTHER HAND...
 ALTHOUGH ETFs have a lotgoingforthem, there are           Buying a single ETF now could leave you with a very
 some issues to watch out for.                             concentrated exposure, Mr Gray explains. Having a
     Morningstar's Mr Gray says: "First up, like index     very narrow market focus increases the risks to your
 managed funds, ETFs don't offer the potential for         portfolio, particularly if that market underperforms.
 above-market value-add which comes with investing         "All this means that if you're goingto invest in a
 in an actively-managed fund.                              country or region-specific ETFyou should combine
 "Tracking a market index also means that ETFs             this with a diversified global share fund or ETFwhich
 don't have the potential to minimise the effects of       gives you exposure to a wider opportunity set of
 market downturns.                                         regions, industries and individual companies.
 "Most of the ETFs currently available to Australian       "It's also worth looking closely at the individual
 investors are also relatively narrow in their focus, as   stocks an ETFtracks before decidingwhether or not
 they track a single country or region's share market.     to buy," he says.
 "If demand for ETFs increases, though, we're likely       "If you already have an unlisted global share fund,
 to see a corresponding increase in the number and         you may already have exposure to many of the same
 variety available in Australia," he says.                 stocks."




                                   Copyright Agency Limited (CAL) licenced copy                                    Ref: 53773437
              Herald Sun
              Monday 6/7/2009                            Brief: TRENDS
              Page: 31                                   Page 3 of 3
              Section: Business News
              Region: Melbourne Circulation: 518,000
              Type: Capital City Daily
              Size: 847.62 sq.cms.
              Frequency: MTWTFS-
*




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          Copyright Agency Limited (CAL) licenced copy              Ref: 53773437

				
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