Exchange Traded Notes are a reliable, efficient addition to any investment portfolio

Nicholas Riemer, Investment Education Head at FNB Wealth and Investments

The impact of Covid-19 on global investment markets served as a valuable reminder of the importance of having a diversified and well-balanced investment portfolio, irrespective of whether you’re an experienced and well-established investor or just starting out on your wealth building journey.

According to Nicholas Riemer, Investment Education Head at FNB Wealth and Investments, the balance component of this equation is relatively straightforward, in principle. “Depending on your circumstances and preferences, a balanced portfolio can usually be achieved through the careful combination of basic low-risk investment classes like cash, bonds and even fixed-term savings, stable and proven local equities like blue chip companies and household brands, and then some prudent exposure to higher-risk, higher potential return mid-class equities,” Riemer explains.

However, he points out that, when it comes to achieving appropriate diversification within a portfolio, especially at a geographic level, things can become a little trickier. Offshore investing involves tax considerations and finding the right, affordable, tax-friendly investment option can be more than a little challenging.

Riemer says that there is in fact a simple solution that could tick all these boxes, and it’s called an Exchange Traded Note, or ETN. “An ETN works similarly to its better-known cousin, the Exchange Traded Fund, in that both are listed instruments that track the performance of an underlying share or index,” Riemer explains, “but the way the ETN is structured, essentially as a debt instrument, allows it to offer a number of additional and compelling benefits, not least investment flexibility, easy global exposure and efficiency.”

He cites the recently released FNB Global Shares offering as a prime example of what investors can achieve through investment in ETNs. The FNB Share offering uses ETNs to track the share performance of 10 of the best known, high-performance companies in the world, including the likes of Apple Amazon, Facebook, Microsoft, Netflix, Tesla, Coca Cola, and McDonalds.

And Riemer explains that in addition to the potential growth benefits of effectively being invested in these shares, the ETN structure also delivers a host of other advantages.

“By using ETNs as the investment solution, investors get global share exposure without having to use any of their annual direct offshore allowance from SARS,” he says, “and the fact that ETNs don’t pay dividends or income means that investors can also defer any tax liabilities until they are ready to sell the instrument in the future

And Riemer also points to a few other advantages that ETN investments have over other forms of share investment. “ETNs are designed to give investors the exact returns achieved by the share or index they track over time, which means that tracking errors are removed,” he explains, “and the fact that investors can choose to have their returns calculated in the foreign currency of the share or index means that ETNs also offer potentially excellent rand hedging characteristics.”

“ETNs are also an excellent way of adding a small component of what some call ‘trend or theme investing’ to your portfolio,” Riemer says, “because, as is the case with the FNB Inward Listed Share offering, an ETN can give you easy, very liquid access to international companies that are leading a global trend and stand to benefit significantly if, and when, that trend literally changes the world.”

“As listed instruments, often with low minimum investment amounts, ETNs can be accessed by anyone,” Riemer concludes, “which makes them an excellent option for established investors who want to easily add geographic or asset class diversification to their portfolios, and for anyone starting out in investing that wants to gain exposure to leading local and international shares without having to invest a fortune or take big risks.”