April 2015 Issue 103

Are ETFs a better option?

B2B Editor1 April 2015

Superannuation investment has come a long way over the years and traditional managed funds are not the only way to gain an exposure to the market. A cost effective alternative is to use Exchange Traded Funds or ETFs. So what is an ETF?

Exchange Traded Funds (ETFs) are one of the fastest growing investment products in the world, offering investors a simple and cost effective way to achieve diversification in their investment portfolios. ETFs blend the benefits of both managed funds and shares. They offer efficient, low-cost diversification, combined with flexibility and liquidity.

ETFs can be bought and sold on a stock exchange like shares. And, like managed index funds, they contain a diversified portfolio of securities designed to track specific indices. Some indices are narrow, tracking a single market sector with minimal holdings, while others are as broad as the entire market with hundreds of holdings. This means investors can use ETFs to gain the exposure and diversification they want, quickly and simply.

The cost of an ETF can be a lot lower than traditional managed funds, historically a retail managed fund could charge between 0.80% and 2.00%, depending on the type of investment maintained. The cost of an ETF can be as little as 0.07%, with costs generally ranging from 0.20% to 0.60%. The cost of the ETF would be impacted by the sector it targets, the provider and the underlying portfolio. This low ongoing cost makes them a very attractive alternative to traditional managed funds.

Another advantage of ETFs is that the investor may also benefit from ongoing income distributions, similar to that of a listed share. In addition, the holder of an ETF could also receive franking credits generated by the underlying investments. This ensures a tax effective income stream is received over time where available.

If you have a portfolio of managed funds that charge higher ongoing costs each year, considering an ETF may be a good way to maintain your diversification whilst reducing expenses. They can be used for investment in your own name, a good personal superannuation fund as well as Self Managed Superannuation Funds.

For more information on ETFs and how they could be a better option for you and your portfolio, come and see the team at Dragonfly, because after all you don’t know what you don’t know.

General Advice Warning:

The information provided in this document is general information only and does not constitute personal advice. It has been prepared without taking into account any of your individual objectives, financial solutions or needs. Before acting on this information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. You should read the relevant Product Disclosure Statements and seek personal advice from a qualified financial adviser.

Luke Smith, Director AFSL No: 237590 T: 02 6273 3118 F: 02 6273 1118 E: [email protected] M: 0413 311 999 GPO Box 1961 Canberra ACT 2601www.dragonflyfs.com.au