INVESTOR INFORMATION - WHAT ARE ETFS?

WHAT ARE ETFs?

An Exchange Traded Fund (ETF) is a pooled investment fund which can be bought and sold on a stock exchange.

  • ETF share prices fluctuate all day as the ETF is bought and sold. In comparison, mutual funds only trade once a day after the market closes
  • ETFs offer low expense ratios and fewer broker commissions than buying the stocks individually.
  • An ETF is a type of fund that holds multiple underlying assets, rather than only one like a stock. Because there are multiple assets within an ETF, they can be a popular choice for diversification.

TYPES OF ETFs

There are now over 8,000 ETFs globally, spanning a wide range of themes and strategies.
Below are some of the key types beyond traditional equity or bond ETFs:

Thematic ETFs:
Focused on long-term trends such as climate change, digital transformation, or urbanization.
They often attract investors looking to align portfolios with future growth themes.

Contrarian ETFs:
Enable investors to take positions against prevailing market sentiment, offering a way to hedge or express non-consensus views.

Factor-based ETFs:
Use rules-based models to target drivers of performance such as value, momentum, quality, low volatility, yield, or small-cap exposure..

Global Macro ETFs:
Replicate hedge fund-style strategies, taking long and short positions across equities, bonds, currencies, commodities, and futures based on macroeconomic trends.

Commodity ETFs:
Track commodities such as gold, oil, or agricultural products—and in some cases, hold physical inventories of the underlying assets.

ETF APPLICATIONS

Institutional investors employ ETFs in a wide range of portfolio functions—from core allocation to risk management.
Below are ten common applications and their prevalence among global institutions:

Application

Purpose

Institutional Usage

Tactical Adjustments

Over/underweight styles, regions, or countries based on short-term views

72%

Core Allocation

Build long-term strategic portfolio holdings

68%

Rebalancing

Manage risk between rebalancing cycles

60%

Portfolio Completion

Fill gaps in strategic asset allocation

57%

Liquidity Management

Maintain exposure while managing cash flow

54%

Transition Management

Facilitate manager transitions

44%

Risk / Overlay Management

Adjust or hedge market exposure

42%

Interim Beta

Maintain market exposure during strategy shifts

37%

Cash Equitization

Deploy idle cash efficiently

37%