How ETFs can boost your value-add

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Trading values in the Australian exchange traded fund (ETF) industry hit record highs in August, demonstrating a ‘coming of age’ for the industry.

Investors are increasingly using the products for tactical and strategic purposes, and this means that advisers have the means to demonstrate greater value to clients.

“ETFs are now being used to their full potential, because they are no longer viewed as just a core exposure instrument, but are increasingly being applied at a more granular or thematic level,”  Jonathan Howie, director and iShares specialist at BlackRock, said.

They are being used by smart advisers in a range of ways – as a rapid access tool for dynamic asset allocation; blended together with stocks, other ETFs and with active funds to deliver a robust portfolio outcome for clients and to reinforce the advisers' value proposition.

According to the BetaShares Australian ETF Review for August 2013, the value of ETF trading in the local market reached $1.2 billion over the month, or an average value of $56m a day. This represents a 40% increase from the previous month’s trading figures – and a 128% increase compared to the same period last year.

Howie said, “A benefit of including ETFs in a wider portfolio today is that advisers are able to truly express a broader range of views for their clients, for example in looking at particular segments of a given market or the globe, all the while offering greater flexibility and often lower cost.”

Alex Vynokur, BetaShares’ managing director agreed that, “While ETFs continue to be used by many investors as long-term ‘buy and hold’ investments, others are realising that they can take advantage of the unique structure of ETFs to make tactical allocations to particular sectors or asset classes.”

This month, the segment to receive the highest level of inflows was developed international equities as investors continue to be bullish on the US economic recovery.

“Asset flows this year certainly show a preference for international equity exposures, as advisers and their clients recognise that investment opportunities are truly global,” said Howie. “With ETFs, investors now have a toolkit to match the global nature of markets. They can easily and quickly access exposures in the investment themes they want and can mix-and-match these to create a truly tailored client portfolio.”