Not so distant cousins of conventional mutual funds are the Equity Traded Funds [ETFs] as both intend to deliver as per the performances of their parent benchmarks and primarily invest in equity markets but because the ETFs can also be traded on spot prices thus are high on liquidity as compared to the conventional funds that normally have a day's lapse on their net asset value [NAV] figures.
ETF Investments or the Exchange Traded Products [ETP] is a multi billion dollar industry in America and its growth which is constant in other first world economies as well. Investors worldwide are intrigued with ideas of investing in the emerging economies and frontier countries but largely admit to being complete novices in this category, although the respective exchanges are doing their bit to promote customer education still pre investment homework or even better professional ETF consulting must be sought and encouraged in this space to enable long term investments in the sector.
A 2012 Charles Schwab report covered 1010 investors out of which roughly two thirds were the existing ETF investors and the rest were considering the asset class. Fifty Five percent of those already booked, admitted to having little or no knowledge about the ETF space and among the potential investors who were still mulling on the idea, the number was as high as sixty three percent, only a small percentage was found to be having moderate to expert knowledge.
ETF Research is important simply because it's your hard earned money and you must be aware of the finer details.
The market traded products will give you exposure in areas that may be broadly classified under the following investment classes:
The allocation to each of the above asset may vary on an individual choices and convictions. Broadly a good ETF consultant will categorize portfolios as follows:
Old School Logic!
1. A Balanced Portfolio: This approach is not dependent on any particular market ideology and the investments are distributed equally among bonds, equities, commodities and cash. Though it sounds safe but over a long term the returns procured with this method are paltry when compared to US capital markets.
All is and always will be well!
2 A Prosperity Portfolio: The method is best for those with a natural deviation towards equity, a digestion for risk and a general belief that all is going to end well and prosper. This partly capitalistic portfolio accounts for Equity as 50 percent of the assets, Commodity gets the one fourth and the rest of the investments are shared equally between Cash and Bonds related equity funds. A derivation done purely for the study purposes reveals that over the five years, this methodology may procure more than fifteen percent returns on an annualized basis.
If recession is your only enemy then now you have none!
3. A Recession Proof Portfolio: The logic is to vest half of your assets in the Cash markets, quarter among the bonds and least with the commodities and equities as these are the most volatile arenas amid recession. In contrast to the American Equity markets this approach may fetch you very less returns but the investor safety is of paramount importance here.
Inflation is coming!
4. Inflation Portfolio Strategies relies most on Commodities, then on Equities and least on Bonds and Cash. The reasoning is to safeguard investor interests during inflations and although commodities may be tricky and hard to predict but over a long term this strategy may turn out to most fruitful.
Effective ETF Consultation will also discount for the risks that arise from the wrong product choices as most of these investment vehicles are fairly new and historical performance data is not available. Hence one should only look at funds which are pure play on their bona fide benchmarks and strictly follow them under a regulatory environ.
Toroso Investments are New York based ETF Consultants offering asset management and research services. The SEC recognized company has its own investment solutions engineered by the AG & G Structured Solutions, Germany which also responsible for designing major indices throughout the world. The officials at Toroso Investments claim that their USP lies in extensive ETF Research work and the Point of View Investing which they believe will radically change the existing norms of dialogue process between investors and advisors.