Basic and advanced ETF investing strategies

Whatever your investment goal, there’s a strategy to help you hit your target.

There are a number of ETF investment strategies that can be implemented to help you reach your goals.

Strategic asset allocation

ETFs can be used as part of your long-term strategic asset allocation. Because they are simple to purchase, cost effective and transparent, and offer exposure to a diverse range of asset classes and strategies, ETFs are often used as long-term holdings. Essentially, investors can use ETFs to construct a diversified, long-term portfolio in a cost-efficient way.

Tactical asset allocation

Use ETFs to ‘tilt’ your overall portfolio towards, or away from, certain asset classes, regions, or sectors which you expect to outperform or underperform. BetaShares Sector ETFs can be used to ‘overweight’ certain sectors of the market, which the investor considers will outperform the broader market. For example, investors with exposure to a broad Australian shares index fund might sell a portion of their investment and buy units in a financial sector ETF (e.g.: BetaShares Australian Financials Sector ETF (ASX: QFN)) if they believe the financial sector is set to outperform the broader market.

This investor would now be ‘overweight’ Australian financial shares. More broadly, ETFs allow you to implement a view on a particular market segment without the need to engage in ‘stock picking’. You can also diversify away from single stock risk.

Thematic ETFs

Thematic investing is about trying to identify long-term transformational trends, and the investments that are likely to benefit if those trends play out. Examples of these themes are climate change, and the rise of cybersecurity, which is increasingly becoming a critical threshold component of all technology solutions as more and more of our world goes online. Investors can gain focused exposure to many of these themes via ETFs. To access the above two themes, for example, BetaShares offers the BetaShares Climate Change Innovation ETF (ASX: ERTH) and the BetaShares Global Cybersecurity ETF (ASX: HACK).

Core/satellite strategies

This is where ‘core’ passive investments are combined with ‘satellite’ active investment strategies. Essentially, the idea is to split the investment portfolio into two categories: Core: this should be the basis of the investment strategy, and should aim to produce market returns (otherwise known as Beta) via lowcost diversified investments Satellite: the aim of the satellite component is to outperform the

‘core’ holdings, and provide returns greater than the market return (otherwise known as Alpha) A core-satellite strategy provides you with the opportunity to outperform the market but at a lower overall cost to a completely ‘active’ approach. Due to the cost effective, diversified nature of ETFs, they are typically an ideal way to get ‘core’ exposure. Satellite strategies can then be achieved via individual stock selection, managed funds or targeted exposures using ETFs tracking more narrowly focused indices.

Parking cash equitisation

ETFs can be used to ‘park’ cash while decisions are being made on investment strategies. For example, the BetaShares Australian High Interest Cash ETF (ASX: AAA) offers the opportunity to earn attractive monthly income from Australian cash, in a single ASX trade, without the need to open a bank account, lock your funds away in a term deposit, or seek out ‘honeymoon’ rates.