Investing in ETFs in Australia

As share market volatility increases in Australia and around the world, investment options offering diversification and some protection are rising popularity. None more so that trading EFTs in Australia or more commonly referred to as Exchange Traded Funds.

With the phenomenal growth of 70% in the Australian ETF market_[1],  Australians are flocking to these investments that provide exposure to a wide range of investments in their asset class.

Offering lower fees, requiring less management and often called ‘passive investing’, ETF’s in Australia track the performance of a particular index, such as the ASX300. As well as Australia ETF’s there are international ETF’s and other ETF’s including currency, fixed income & cash plus commodity markets_[2]. 

This is achieved through the fund being set up with the purpose of tracking a particular index, and not deviating from that path should an opportunity arise for investment outside the parameters of the original plan that was created.

Investing in ETF’s provides security to investors, as they understand the ‘objectives’ and the ‘purpose’ of the fund, what index it is set to track and they can invest in the knowledge that their investment should track similar to the index.

This is achieved by ETF’s in Australia by purchasing shares that are weighted to mirror that of the size of the company or asset in a particular market. For example, the Vanguard Australian Shares Index ETF or VAS, has its investment 31.8% in financials, 18.6% in materials, 8.5% in health care, and 8.1% in industrials – similar weighting to the performance of the ASX as a whole_[3].

Investing in EFT’s in Australia allows investors to spread their investment over a range of companies at relatively low fees to hedge against any one company, market or sector tanking and taking their investment with them.

 However, there are of course risks with ETF’s as there are with all investments, some of these include with international ETFs on the ASX that provide investors with the opportunity to buy into a fund based in Asia, Europe or anywhere around the world depending on the market the fund is tracking. These funds are exposed not only to the market movements, foreign market domestic events and geopolitical influences but also to foreign exchange movements, that can increase or decrease the value of the investments.

In addition, in the occurrence of a market crash, recession or GFC, when the whole market goes down, as does the ETF.

That being said, Australian ETF’s are relatively easy to access for any investor with a broker or online investing account, and minimum investments often are around $250 or even sometimes non-existent, making them an excellent option for first-time investors or investors looking to hedge their portfolio risk.

While seen by many investors as a ‘safer option’, it must be noted that risks do apply, especially around the derivative market. Speaking with a professional advisor is always advised to ensure alignment with your investment strategy and personal financial goals before investing in Australian ETF or International ETF options.

[1] https://www.asx.com.au/education/investor-update-newsletter/201809-the-best-ETFs-in-a-boom-year.htm?ecid=O~E~~~b2b~investor-update~~20189~0039000002JTXcfAAH~

[2] https://www.canstar.com.au/etfs/

[3] https://www.vanguardinvestments.com.au/retail/ret/investments/product.html#/fundDetail/etf/portId=8205/?portfolio

 We welcome you to give our team a call to discuss your investment goals and objectives.

You can call Walker Capital Australia on +61 2 8076 2210, and we’ll see how we can help you achieve your investment goals.

For more information on currency investing, check out our full article: Exploring ETF: Exchange Traded Funds.