Exchange-Traded Funds or ETFs have become increasing popular to the mainstream investor due to their easy access and typically low-cost fee structure. They provide an avenue for broad-based market exposure across many different regions and specialties. Whether you are interested in investing in bitcoin or Latin America, there is likely an ETF for that.
ETFs can be a useful tool for those DIY investors venturing out into the world of investing, but not necessarily wanting the task of individual stock picking. However, there are some things to bear in mind when investing in ETFs. Firstly, the majority of ETFs are passively managed, meaning that they follow the underlying stock market, but do not make any individual or market calls; this is why they are often lower in cost. Additionally, since ETFs trade on an exchange just like stocks, there is inherently market risk involved. If you are not diversified within your ETF holdings, you are susceptible to this market risk along with concentration risk. Even if you are diversified within ETFs, there may still be positive correlations between markets. This means that if you are hit in one ETF it is entirely possible that the effects will be felt in other parts of your portfolio as well. But generally, ETFs can serve as a good starter kit.
Capstone Private Wealth specializes in active portfolio management which we feel better serves our accredited investor client base. We can be pro-active as well as reactive when needed. Having said that, if we are looking for a certain type of market exposure and an ETF is the best way to gain that, then we can certainly pursue that as a viable option. Like any Funds, not all ETFs are created equal, so it is important to know the product and do your research before investing.
Janet Kim Sing, Portfolio Manager
Capstone Private Wealth