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Exchange Traded Funds

Adviser Voice – CPD a part to play – ETFs and client portfolios

John Hewison , Ray Griffin
Hewison Private Wealth
20 May 2014

For more than three decades the ways in which financial advisers deploy their client’s investment capital into markets has been evolving.

From the introduction of retail unit trusts in the 1980s and the subsequent emergence of master trusts and access to wholesale unit trusts in the 1990s, the underlying theme of this evolution has been one of efficiencies underpinned by cost savings for both product manufacturers and investors. By the early 2000s unlisted index funds, both retail and wholesale, started to garner more presence in advisers’ portfolio recommendations. Roll forward to the second decade of this century and Exchange Traded Funds (ETFs) are now taking an increasing share of the capital deployment route for investors.

So what is it about ETFs which sees them receive a seemingly ever increasing flow of adviser recommendations for clients? AdviserVoice’s Ray Griffin spoke with John Hewison CFP of Hewison Private Wealth (Melbourne), Paul Dunn of Meridian Wealth Management (Melbourne), Tim Mackay CFP of Quantum Financial (Sydney) and Adrian Zoppa CFP of Hood Sweeney (Adelaide) in an effort to identify how advisers are using – or not using – ETFs in their advice to clients. He also then takes a close look at Exchange Traded Australian Government Bonds and how they provide access to government bonds in the retail market.

As the name suggests, ETFs are investments which can be bought and sold on an investment exchange and which can have a variety of underlying asset exposures. Shares both domestic and international, fixed interest (bonds), listed property, currencies and commodities exposure can all be accessed through ETFs. While the first ETF launched in 1989 in the United States was a passive share market passive index exposure, there is an emerging trend for ETF providers to market active funds.

In terms of equity ETFs, perhaps their closest relative is Listed Investment Companies (LICs) in that they are both bought and sold on, in the case of Australia, the Australian Securities Exchange (ASX). However, at that point they traditionally diverged with ETFs typically having been passive index exposure whereas LICs are investing in companies based on research and analysis which complies with the LIC’s investment strategy. Like LICs, ETFs provide low cost access to markets with Management Expense Ratios (MERs) as low as 0.05% p.a.

By early 2014, with the total number of ETFs being traded in Australia approaching one hundred, funds under management had reached circa $10 billion. According to a 2013 survey by BetaShares and Investment Trends, approximately half of the 102,000 ETF investors in Australia were SMSFs.  Globally, ETFs account for around US$2.4 trillion with more than 5,000 funds listed on 59 exchanges. With such numbers, ETFs are anything but the latest ‘fashion of the month’ investment.

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.