Skip to content

Five Reasons to Make ETFs Part of Your Client’s Portfolio

David Giordano| Freek Spoorenberg| Rory O'Connor |Jul 11, 2019

Exchange-Traded Funds, or ETFs for short, are one of the easiest and most cost-effective ways for investors to gain exposure to financial markets, making them an increasingly popular investment product. ETFs offer easy access to a broad range of assets — from equities to bonds to commodities— typically aiming to mirror the performance of an index, such as the S&P 500. ETFs can be bought and sold instantly on an exchange in the same way as an individual stock is traded, giving the versatility to move seamlessly between different asset classes or sectors. The global ETF market is now worth around $4.7 trillion, up from just $100 billion at the turn of the century. BlackRock anticipates that global ETF assets could hit $12 trillion in the next five years, in part driven by increased fee sensitivities and a changing mindset among investors that favors asset allocation over individual securities selection.

So, what’s the big attraction? Below is a rundown of five compelling reasons why advisors recommend ETFs as a core part of their clients’ investment portfolios.

Diversification

Most ETFs invest in a broad portfolio of securities, typically giving investors exposure to a specific market without having to buy those securities individually. That means investors can use ETFs to actively make quick asset allocation decisions, switching between different types of asset classes, sectors, regions or investment themes with ease, giving investors a myriad of ways to diversify their holdings and manage risk. Latin American investors, for instance, frequently use ETFs as a way to add international diversification to their portfolios or as part of a multi-asset strategy.

Cost

Most ETFs are designed to track the performance of a benchmark index, so they often have lower fees than other types of actively managed investment funds, which usually take a bigger slice of returns to cover expenses such as management fees and more frequent trading costs. Lower fees give investors the option to keep more of what they earn, potentially helping them reach their investment goals faster. ETFs also tend to be tax efficient, particularly UCITS ETFs, which can offer potential tax benefits compared to other products.

Liquidity

Given that ETFs are traded on a stock exchange, the ease of being able to buy and sell at any time the market is open is a major reason why investors choose ETFs. Just like with stocks, investors can see real-time prices for ETFs, meaning any market-moving news will be quickly reflected in the price, allowing investors to make more informed decisions on whether to exit an investment or add to their portfolio.

Transparency

Most ETFs publish their holdings on a daily basis and report performance results quarterly. Investors can see exactly what is under the hood before they buy a fund, and when invested, they can track the current fund holdings of their ETFs to see how the fund is performing relative to the benchmark index. This transparency can provide investors with greater confidence about how their money is being invested and enable them to keep tabs on whether an ETF is meeting its stated investment goals.

Flexibility

Because ETFs trade on stock exchanges, investors have the flexibility to buy and sell their funds whenever the market is open. ETFs can also be used to pursue a range of investment strategies, like buy-and-hold strategies, or tactical asset allocation plays, or can be used as short-term trading instruments.

Act Now

With investors and advisors increasingly focused on value for money, ETFs can provide a low-cost and convenient way to access a variety of investment options. iShares Core ETFs can be used as building blocks to form the core of a diversified, long-term portfolio that is nimble enough to respond to shifts in market sentiment while allowing investors to quickly embrace emerging investment trends.