Room to co-exist

Room to co-exist

Investing in ETFs, shares and managed funds is not mutually exclusive

Investing in ETFs, shares and managed funds is not mutually exclusive

I recall a meeting I had with a financial planner roughly three years ago where I asked “How familiar are you with ETFs”? The response was all too familiar back then – “I’m a financial planner, I don’t need an EFTPOS terminal. Thank you”! 

Oh, how times have changed.

As a business development manager, I travel around the country speaking to financial advisers, institutional clients and retail investors. In more recent times, there has been a marked change in the conversations – from people simply not knowing what ETFs are to more nuanced conversations around the potential benefits of including ETFs in portfolios.

One topic that comes up consistently is whether advising on, or investing in ETFs is in competition with direct equities and managed fund holdings. I can definitely say that, after dealing with many clients who are successfully using all three investment products in their portfolios, this is certainly not the case.

Traditionally, Australian investors who wanted exposure to the Big 4 banks and Telstra would just buy the shares on the ASX. In five trades, the investor would own the shares and receive the dividends and franking benefits.

Without doubt, such activity is still prevalent as many investors continue to be avid stock pickers and have adequate access to stock research and analysis. But take the example of a client who doesn’t know, nor want to predict, the best stocks to buy, but still wants to be invested in the banks.

Here is where an ETF may help. By investing in an ETF that tracks the performance of the major financial stocks, for example our financials sector ETF, an investor who has a view the financials sector will rise can easily and simply obtain exposure to the entire sector in one trade and still receive the dividends and franking from the underlying companies.

Managed funds are the other primary investment tool used by investors. The concept here is to invest money by buying into a fund, where the fund manager has the knowledge, experience and research to pick the best stocks on an investor’s behalf. This selection of stocks is packaged up in a unitised structure, allowing an investor to, should they wish, “set and forget”.

Without doubt, if you find a high performing fund manager, this can be an efficient option. However, there is no guarantee the fund will outperform the benchmark each and every year, in which case the fees you’re paying could be better spent elsewhere.

Clients that invest in managed funds can combine such funds with ETFs to lower the cost of the portfolio (as ETF fees are typically substantially lower than those charged by managed funds), and also add an index element to their investments.

The point is you don’t need to consider investing in ETFs, shares and managed funds as mutually exclusive. ETFs are flexible tools that can be used in a variety of ways to add value to investor’s portfolios when used in conjunction with other investment vehicles.

Mai Platts is business development manager at BetaShares, responsible for distribution activities institutional and intermediary channels. She has previously worked in numerous distribution teams across the funds management industry, including at iShares (BlackRock), where she primarily focused on educating financial advisers about ETFs.

Prior to iShares, Mai was a national relationship manager with Certitude Global Investments and has also held sales roles within Macquarie Bank. She has a Bachelor of Agricultural Economics and a Master of Business Law from the University of Sydney.

Room to co-exist
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