Exchange Traded Funds

Think of a traditional investment trust but one dedicated to a single asset class - say European equities. Picture this trust holding a portfolio of European equities chosen to exactly replicate the structure and performance of the European equity index so that there is no risk of poor stock picking. Finally, picture this trust having solved the traditional problem of investment trusts that their shares routinely trade at a discount to their underlying asset value so denuding part of their return. In broad terms you are picturing an Exchange Traded Fund.

Now picture an ETF whose specialist single asset class is not a mainstream equity market like Europe but instead Chinese or Indian equities. Picture too an ETF whose single asset class is, for example, global private equity companies, US inflation-linked government bonds, Far East property companies, emerging markets infrastructure companies or global clean energy companies. You are now picturing how the rich universe of ETFs can be used as building blocks to create a truly diverse portfolio.

First launched in the US in 1993, by the end of 2007 there were some 1,200 ETFs world-wide, with assets totalling nearly $800bn. They are a well established investment tool. However, their potential as portfolio building blocks has been transformed over the last three years by a proliferation of new and diverse ETF launches, resulting in a broad universe of investment opportunities.

Investing in Exchange Traded Funds requires professional advice and not all ETFs are suitable for all investors. However, it is now possible to construct balanced, widely diversified investment portfolios comprised more or less entirely of ETFs and tailored to each investor’s different circumstances and requirements. This is where the strengths of traditional investment management, index tracking and alternative investment meet. We believe many investors will conclude that it is the way of the future.