ETFs can help in a range of investment strategies:
- Rebalance portfolios and steer investment strategy quickly and easily
The flexibility that ETFs offer means that asset allocation decisions can be executed instantaneously and cheaply. An investor can achieve broad exposure to equity, bonds, the US or Europe very easily. Subsequent rebalancing can take place with just a couple of trades. ETFs also allow even the smallest portfolios to achieve broad diversification.
- Core / satellite approach
No investor or even investment professionals can follow every instrument in every market. ETFs allow investors to build a core market portfolio while concentrating on those instruments they follow closely and add their stock picks for additional out performance. In this way, passive (tracker) funds can form part of a very successful active strategy.
- Tactical investing in the short term
Sometimes markets move very fast indeed and the ability to pick up the phone, receive a real time price and trade there and then can make all the difference. Unlike unit trusts, where you may not be able to deal for 24 hours and will not find out the price until afterwards, ETFs allow you to both take advantage and avoid the pitfalls of fast markets.