Retirement
Fees and sloppy strategy are costing some Aussie investors
As exchange-traded funds grow in popularity due to the diversification they provide, investors should be aware of the benefits – and drawbacks – of integrating ETFs in their investment strategy.
Fees and sloppy strategy are costing some Aussie investors
As exchange-traded funds grow in popularity due to the diversification they provide, investors should be aware of the benefits – and drawbacks – of integrating ETFs in their investment strategy.
In a superannuation context, for example, ETFs may not be an absolute necessity. Diversification and exposure to different markets is a key enticement of ETFs, but many APRA-regulated superannuation funds have this built in to their core strategies. Typically, these superannuation funds have a well diversified mix of shares, unlisted assets and foreign exchanges.
“Some people love the idea of having control of their assets, but if you’re going to buy a passive ETF, you can basically get the same outcome with something the super fund is managing,” said Canstar’s group executive of financial services and chief commentator, Steve Mickenbecker.
“If you’re going to depart from the pre-mix, it makes sense to depart if you’re getting an outcome you weren’t getting in that pre-mix,” he said.
“If you’re getting an index hugging pre-mix, why would you add more of that to your portfolio? It’s not achieving anything that isn’t being delivered already,” continued Mr Mickenbecker.
When should an investor seek an ETF?
If an investor believes strongly in a product or market, such as a foreign economy that the super fund does not cover, then using an ETF for that exposure can be an effective strategy.
“That’s exactly where you should be thinking about adding something to your portfolio,” said Mr Mickenbecker.
“You would look at it and say, ‘My super fund won’t allow me to get the exposure I’m after and I have a strong view about this industry or country’, that’s exactly where you should build something outside the offering the super fund,” said Mr Mickenbecker.
Beware the extra costs
If investors choose to put their funds into strategies outside of the default packages, they need to be aware of the potential costs. At a minimum, superannuation funds will charge members a management fee for differentiating from traditional funds.
“It does add to your cost, so you really have to justify it through performance,” said Mr Mickenbecker.
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