Investors feeling uncertain about the market outlook, particularly following reporting season, could find an “actively passive” approach using exchange trade funds (ETFs) helpful, says Jon Howie, head of iShares Australia.
“Ongoing volatility in the market, as well as mixed messages from reporting season, is leaving many investors confused about the best way to capture opportunities,” Mr Howie says.
“One useful approach is to be leverage both the active and passive worlds of money management to help reduce risk and create value – that is, use passive ETFs in an active manner.”
Mr Howie says that such an approach offers three key benefits.
“Firstly, it means nervous investors don’t have to sit on the sidelines while they wait for the market to steady itself. Indeed, the one thing they probably shouldn’t do when markets get choppy is cash out.
“Using ETFs, they instead can stay actively invested and capture the ups with the downs, while continuing to do their own research and picking specific stocks and bonds.
“Secondly, using ETFs allows investors to diversify their core investment holdings. ETFs are a low-cost way to build and diversify – with just a few funds, investors can get a broad representation of companies and sectors from Australia and even from around the world.
“Thirdly, investors can use ETFs to target asset classes, geographic regions or industry sectors that look attractive over the near- or medium-term.
“ETFs cover much of the investable global markets, so you can get exposure to several countries in one fell swoop or use precision exposures to target a specific market.
“International ETFs can help you diversify across regions and seek new sources of yield. Whether you’re interested in developed markets generally, specifically in Chinese large-cap companies or even emerging markets, there is a corresponding ETF.
“By being selective, ETFs can be used to boost exposure to regions with attractive valuations and to sectors that are poised to do well in the current economic cycle.
“Picking winners in today’s volatile market is exceptionally challenging, but ETFs can help investors navigate the ups and downs.”
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