Ask Colin

Are you aware of any ETFs you would be prepared to consider using should you not wish to hold company shares directly?

The detailed question was:

In addition to owning stocks, I am looking at ETFs. There seems to be many and there doesn't seem to be much financial information about them.

I quite accept that you don't give financial advice and I totally accept that any information or comment you provide is not such advice. My question is whether you are aware of any ETFs you would be prepared to consider using should you not wish to hold company shares directly?

I am not an expert on ETFs, and don’t know a lot about them beyond the general basics from my extensive reading over the years. I have never wanted to invest in them, so I have never researched specific ETFs.

You are a member of my website, so you will have read the recent study I posted on that question titled Listed Investment Companies - on the Investment Plan Changes page on the Building Wealth Resources menu. In it I considered Index funds ETFs, but dismissed them as not meeting my long-term objective because they cannot by definition match or beat an index – only track it. I also dismissed ETFs that are actively managed funds on other grounds.

You will have also read Michael Kemp’s article Listed Investment Companies and ETFs on the Creating Real Wealth page on the Buy Books menu (these articles will soon move to a new dedicated page Michael Kemp Articles on the Free Resources menu).  

A caution on ETFs – they are a very wide range of traded securities with greatly varying risks, so it is important to understand the specific ETF before you invest. Never invest in something you do not understand – assessed by being able to explain how it works and the risk/reward trade-off to someone who knows nothing about them.  

I don’t agree with your statement “There seems to be many and there doesn't seem to be much financial information about them”

ETFs in general – just Google ETFs – there is a huge amount of material there.

Specific ETFs -  

  • Go to the ASX Announcements page on your brokers website or the ASX website to  access all the announcements and annual reports etc.

It isn’t hard – no different in principle to researching any listed security. If you do not have the research skills, you need to consult a licensed financial adviser. That said, their business model is centred around providing total advice and management of the person’s financial affairs. This would seem to be far more than you are looking for, which is just advice on selecting ETFs/ETPs.

So, while I am not expert in this field, so cannot teach it, I would recommend that your options are:

  1. Reputable bodies that provide education – I would recommend looking at the Australian Investors Association and perhaps the Australian Shareholders Association. Visitors can attend their meetings a small cost.

  2. A full service stockbroker. I cannot suggest anyone in your city, but asking around at the Australian Investors Association might be helpful.

  3. There is no substitute for doing your own research to understand what it is you are buying. ETFs/ETPs are not simple instruments and there are significant risks to understand and manage. This is why, if I cannot manage my investments in the future, I much prefer the large passive Listed Investment Companies as my strategy that have a track record of beating the market through the cycle and try to pay a dividend stream that does not slip back and generally increases gradually, staying with/ahead of inflation. They are much easier to understand that ETFs/ETPs, with very high disclosure.

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