“There are a number of ways investors use ETFs for investing. Three styles are, precision exposure, entire portfolios and blending active management.”

Jonathan Howie
Head of iShares Australia

Model Portfolios

ETFs offer many ways to benefit from the broad landscape of investment markets and can be used to create a diversified portfolio. Your approach depends on what you want to achieve: investing for growth or for income; diversifying an existing portfolio; or investing through different risk profiles. The simple and flexible nature of ETFs means they can play a central role in any investment portfolio. In consultation with your investment adviser you can adopt a number of strategies using ETFs to get market exposure very quickly and easily to express your views and meet your investing objectives.

Selecting A Profile To Express Your Objectives

In order to help investors determine the outcomes that might reflect their investing profile, many investors consult with financial advisors. They would typically be allocated a risk tolerance based upon many factors such as age, income, investable assets and knowledge of investments. The following risk spectrum is commonly utilised in this process.

Selecting A Profile To Express Your Objectives


ETFs provide simple, easy and cost-effective ways to invest the core of a portfolio. There are many ways to put a group of ETFs together for the purpose of constructing a diversified portfolio.

Core/Satellite Portfolio Construction

Core/satellite portfolio construction aims to combine the most effective characteristics of index and alpha-generating strategies offering flexibility and lower costs than more conventional approaches. The broad range of market exposures offered by Exchange Traded Funds (ETFs) allows for a significant role in the implementation of core/satellite strategies, used both as efficient core investments as well as satellites.

Core/satellite investing is based on the simple concept of splitting a portfolio into two segments.

The first is the core (see Figure below). This forms the foundation of the strategy around which the more specialised satellite investments can be added. The core investments account for the main part of the overall portfolio, a typical allocation to the core investments would be 70%.

The core usually takes the form of a low risk, pooled investment vehicle. This is typically an index tracking fund, such as an ETF, that offers low cost, broadly diversified exposure to a market or index. The aim is to deliver a return in line with the market’s performance – this is often referred to as the beta return.

The second segment of the portfolio is made up of the satellites. These are typically more specialised investments which the portfolio manager believes will deliver additional returns (alpha). This can be achieved through exposure to specific markets, actively managed funds, investment themes, individual securities and ETFs. Satellite investments typically carry higher risk and fees than core investments.

Core/Satellite Portfolio Construction

Blended Portfolios

The rise of exchange traded funds (ETFs) has made it easy to gain market exposure. Meanwhile, actively managed strategies are evolving to deliver higher value outcomes for investors. Blending these approaches can improve your portfolio and help solve real-life investment challenges.

Blended Portfolios

> ETF s can provide more efficient access to markets: With low fees and a tax efficient structure, ETFs can outperform traditional style-box mutual funds.

> Active strategies align with your goals: By focusing on specific investment outcomes like income and growth, actively managed strategies have evolved beyond providing traditional style-box exposure.

This approach uses ETFs to replicate style indexes to manage expense ratios and limit risk versus the index.

ETFs are also used to get quick exposures as part of a tactical asset allocation process.

Using ETFs keep overall expenses low so that you can invest in high value actively managed strategies – specifically unconstrained or high conviction managers.

High value active managers, such as unconstrained or outcome oriented strategies, help you overlay their views on the market into the portfolio.

Seek Global Growth With International ETFs

Many of the world’s most profitable companies reside overseas. By broadening your investment universe, you can also expand your portfolio’s growth potential.

ETFs can help you expand your global reach.

Cover the globe

ETFs cover much of the investable global markets, so you can get exposure to several countries in one fell swoop.

Focus on a region or single country

Whether you’re interested in developed markets or specifically in Chinese large-cap companies, there is a corresponding ETF.

New sources of dividends

International ETFs help you diversify across regions and seek new sources of yield.

Test emerging markets

Emerging markets can help increase the diversification of your portfolio. You can add stocks from emerging market countries with one of our broad emerging market ETFs or focus using a single-country.

Hedge Currency Impact

Making Sense of Currency Exposure

Look to manage the impact of currency on your international stocks with our currency hedged ETFs

Fluctuating exchange rates can impact your global equity returns.

Hedged ETFs can help you easily manage the effect of currency on your investments and can be paired with their unhedged counterparts to tailor currency risk while maintaining consistent equity exposure.

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