Speaking to SMSF Adviser, Skeggs Goldstien director Adam Goldstien said that as the ETF market grows, providers are offering more ‘exotic’ varieties, for example ETFs biasing higher yield stocks.
“These ETFs may contain their own set of investment strategies and constraints resulting in differing returns between similarly named ETFs,” Mr Goldstien said.
“Due to the number of ETFs and the myriad of investment options available, ETFs can lead trustees to making decisions that are not commensurate with their fund’s investment strategy, particularly if using dis-intermediated online broking services,” he added.
Mr Goldstien also said some ETFs effectively track a benchmark “with no meaningful active returns”.
Practitioners should be certain that there is sufficient liquidity in the ETFs they consider for their clients to ensure the ETFs can be traded in a timely manner, he added.
However, Mr Goldstien also pointed to the various benefits of ETFs for SMSFs, saying ETFs are a relatively simple way to allow an adviser or trustee to achieve diversification in an SMSF portfolio by providing access to a wide and varied range of assets and investments.
He also said that by “traditional standards” ETFs are very inexpensive.
“For this reason they are a very attractive investment vehicle for SMSF trustees taking control of their superannuation,” he said.
Katarina makes good sense.
As a retired analyst and current SMSF Trustee I can recall many times in the past 40 years when investors have been surprised learn that the name of the pooled investment they chose bears little relevance in predicting how it will perform in a turbulent market.
“high Income” may infer incorrectly that a fund is going to be less volatile, ala Incomelink in 1987, or CashPlus funds in 1994.
I would also add that Trustees should seek specialist advice to ensure that the stock lending and synthetics policies of the ETF they are interested in suit their style.
Many ETF’s lend stocks and hence have an additional discrete risk of failure in a 2207-2008 style market event.
Who would have believed Lehmans would go broke,and what if they had ETF’s in which they lent shares to other damaged entities?
ETF’s are not “fool proof” nor are they ” set and forget ” investments.