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How investors can beat the market through ETFs
Despite being known to track an index, investors are being advised that exchange-traded funds have evolved and can now beat the very markets they were initially created to track.
How investors can beat the market through ETFs
Despite being known to track an index, investors are being advised that exchange-traded funds have evolved and can now beat the very markets they were initially created to track.
Historically, investors looking to track market growth and follow one of these indexes in a single trade would purchase an exchange-traded fund or ETF, which allows them to purchase the entire market in one transaction.
However, in a conversation with nestegg, ETF securities head of distribution Kanish Chugh explained how ETFs have evolved beyond being a market tracker.
“The ETF market has gone beyond market trackers, which I think is really important. There are ETFs now available on thematics or sectors.”
Mr Chugh said savvy investors are now looking into themes that could be the potential winners moving forward.
“One that is seeing a lot of interest recently is battery technology ETFs, with Biden’s big push into renewable storage and trying phasing out combustible vehicles,” he said.
While pointing out the benefits of market-based ETFs from a return and diversification point of view, Mr Chugh said: “A lot of investors have invested in the S&P 500 because they want to [access] US big market growth or invest in the NASDAQ 100 ETF because they think that is where the growth is.”
“We launched a FANG + ETF, which is 10 stocks equally weighted (Twitter, Alibaba, Facebook, Amazon, Apple, Netflix, Alphabet, NVIDIA, Biadu and Tesla) and what we found since launching in March it has returned 52.7 per cent.”
“For investors, this has beaten the NASDAQ 100 at an index level. You can significantly outperform if you took the NASDAQ 100 or S&P 500 as a benchmark,” Mr Chugh highlighted to investors.
Mr Chugh explained that while it does not track an index, ETFs based on a theme or sector can still behave the same way.
“It’s still a passive exposure. I think it gets lost sometimes. It is still an index, with the ETF still just tracking an index,” Mr Chugh said.
nestegg previously spoke with Mr Chugh about whether it is too late to start investing in market index ETFs.
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