ETFs driving retail investor empowerment – db x-trackers
Wehmeyer Ferreira, head of db x-trackers in South Africa.
Exchange traded funds (ETFs) do more than reduce the cost of investment. They have become an important means of empowering retail investors and their financial advisors by demystifying portfolio construction and management.
Their investor empowerment role has been highlighted by Wehmeyer Ferreira, head of db x-trackers in South Africa, the only local provider of rand-denominated ETFs covering the US, European, UK, Japanese and global equity markets.
He notes that most attention is focused on ETFs as a low-cost method of passive investment designed to capture the performance of a specific market index, without trying to achieve the market-beating returns sought by active investment managers.
However, market alignment also simplifies the task of managing personal investments.
Ferreira explains: “Researching and choosing an actively managed unit trust can be tough. Typically, retail investors focus purely on historical performance and perhaps brand visibility. Other issues are ignored, with the potential to increase the risk of poor performance.
“ETFs eliminate performance risk as they replicate the benchmark index rather than try to beat it.”
ETF transparency also facilitates a DIY approach to portfolio management.
ETFs fully disclose their holdings. They simply hold the constituents of the targeted index. In contrast to active funds, ETFs have no competitive secrets around precise portfolio make-up.
Says Ferreira: “By using ETFs, private investors and their advisors can now accurately allocate investments across asset classes such as offshore equities, local equities, fixed income and property.
“It is only a matter of matching asset class weightings according to the risk profile, selecting the ETFs and regularly rebalancing the weightings to keep them in line with risk apetite and investment objectives.”
Simplification of the portfolio management process and the empowerment of individual investors has the potential to improve long-term performance as “no one cares more about your money than you do”.
However, ease of management can create a possible pitfall – the temptation to tinker too much and too often.
“Properly qualified financial advisors still have a key role,” adds Ferreira. “It is important to define long-term goals, investment horizons and risk tolerance. Once you have a good strategy in place, it is important to stick with it. Good advisors add value by helping the individual to maintain this discipline.”
