ETFS have become increasingly popular in recent years due to their many advantages when compared to their more well-known compatriots of unit trusts and OEICs.
This is Wikipedia’s definition of an ETF “An exchange-traded fund (ETF) is an investment fund traded on stock exchanges, much like stocks. An ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day. Most ETFs track an index, such as a stock index or bond index.”
ETCs, Exchange Traded Commodities, and ETNs, Exchange Traded Notes, are not within the scope of this article.
They have a number of advantages over collective investment schemes, OEICS and unit trusts, which is why investors are increasingly investing in them. There main advantages are as follows:
- They are very low cost compared to collectives.
- They are traded throughout the trading day rather than prices once a day like collectives.
- They are highly suited to tracking stockmarket indices or specialist sectors.
- Indirectly they offer a very large number of shares within each fund especially through index tracking with costs and time savings that a private individual investor couldn’t possibly replicate.
So what are the disadvantages?
- An ETF is a security or share which means it’s price is determined by supply and demand resulting in more price volatility during the trading day.
- It offers no investor protection unlike collective investment schemes (OEICS and unit trusts).
- There is a lot of smoke and mirrors when it comes to analysing ETFs because they haven’t been established as long as more traditional funds meaning that investors can be fooled into buying an ETF in a particular sector which isn’t invested consistently with other ETFS in its sector.
So why do ETFs feature so prominently within Minerva Money Management?
Well we thoroughly research ETFs and put them through a stringent due diligence process before including them in our fund. We have put in many hours of research into ETFs including attending ETF conferences, studying the subject and analysing the funds very closely.
We believe that the very low cost of such funds combined with the ability to invest into specialist themed sectors give our fund unparalleled diversification of risk to our investors and opportunities unavailable elsewhere. In addition to this because they are owned within an OEIC investors are afforded investor protection which would be unavailable if they were to invest directly into these ETFs.
That’s why ETFs form a fundamentally important role within Minerva Money Management and is why we believe they will contribute significantly to the success of our progressive fund.
Tony Byrne
Managing Director
Minerva Money Management
