Connect with us

Business

Phuket Finance: Using exchange traded funds

Legacy Phuket Gazette

Published

 on 

PHUKET: In today’s uncertain economy, investors are increasingly seeking diversification, safety and a secure income. Interest rates continue to hover at or near all time lows in many countries, and the continued uncertainty about the strength of the global economic recovery has made many investors extra cautious.

Nevertheless, there is one investment option available that can offer risk-adverse investors both safety and income.

What ETFs are
Exchange-Traded Funds (ETFs) are investment funds that trade on global stock exchanges just like individual stocks.

They have been available to retail investors since 1993 in the USA and since 1999 in Europe.

Like mutual funds or unit trusts, ETFs may hold any type of asset class such as individual stocks, bonds or commodities and they can be bought or sold at the end of each trading day for their net asset value.

However, ETFs differ from many types of mutual funds or unit trusts in the sense that they usually track a specific index such as the S&P 500, the Telecommunications Services Index or the Japanese Nikkei 225.

What the benefits are
The major benefits offered by ETFs for investors include: transparency as their portfolios are priced throughout the day; diversification across an index or market, and tax efficiency – since ETFs do not need to buy and sell stock to cover investor purchases or redemptions. This also leads to lower expense ratios, since ETFs are not actively managed and have lower accounting, distribution and marketing expenses.

ETFs also come with the same features as stocks. They can be bought or sold during any part of the day as well as bought on margin or sold short. Investors can also trade ETFs using stop and limit orders in order to specify what prices they are willing to buy or sell at.

Finally, ETFs that invest in dividend paying stocks offer equity investors seeking income an additional measure of income safety as they do not rely on a single company’s dividend payout stream to generate income for investors.

The Vanguard Dividend Appreciation ETF, for example, is designed to measure the performance of common US stocks that have a history of increasing dividends for at least ten consecutive years.

The top ten holdings are Pepsi, Procter & Gamble, McDonald’s, IBM, Johnson & Johnson, Exxon Mobil, Coca-Cola, Chevron, Wal-Mart and United Technologies (see graphic above).

The fund has a very low expense ratio of 0.25% per year, currently yields 2.2% and is up 90% from the March 2009 low.

Types of ETFs to invest in
The use of ETFs has increased exponentially as they have gained popularity with investors.

However, there are a couple of categories of ETFs that ordinary retail investors should consider adding to their investment portfolio. These ETF categories include the following:

Index ETFs:
By their very nature, most ETFs are actually an index fund as they usually track a particular stock index. This tracking can be done by owning the individual equities that make up the index.

Some examples are the iShares Emerging Markets Fund, PowerShares NASDAQ Internet Portfolio and the iShares Thailand Index Fund.

Bond ETFs:
For fixed income investors, investing in bond ETFs will offer certain advantages as they can be less risky than owning an individual bond plus investors have the ability to profit during bear market downturns or recessionary times.

Commodity ETFs:
This category of ETFs will invest in commodities, which may include precious metals, such as gold or silver. However, investors need to be aware that commodity ETFs are generally not regulated by the Securities and Exchange Commission (SEC), although they may in fact be subject to regulation by the Commodity Futures Trading Commission and they need to fully understand how such funds attempt to replicate the performance of a particular commodity. This is because they may be invested in futures or other exotic investment vehicles.

Currency ETFs:
These types of ETFs are total return investment products where an investor will gain access to FX (foreign exchange) spot rates and local institutional interest rates for a particular country or region. Hence, investors can profit from higher interest rates or currency fluctuations between countries.

In addition to the above ETF categories, new and more exotic ETF products, such as actively-managed diverse ETFs and leveraged ETFs, have been introduced in recent years.

Before considering these new types of ETFs as investments, investors need to fully understand that new ETF products may be subject to additional risks, which traditional ETFs are not subject to.

ETF Benefits:
Low expense ratios; tax efficiency; portfolio diversification; transparency; easy to buy and sell; same features as ordinary stock eg: limit orders, options, and stop loss orders.

Conclusion:
Investing in ETFs can be beneficial for investors seeking diversification, safety and a more secure income. However, investors need to remember that ETFs are still equity investments and hence, they can be impacted by market volatility.

Therefore, if you are thinking of investing in ETFs, be sure to consult a qualified financial advisor who can advise you on how to select the right ETF investments that will fit into your current investment portfolio and match your particular investment needs.

Don Freeman is President of Freeman Capital Management, a registered investment Advisor with the US Securities Exchange Commission (SEC), based in Phuket, Thailand. He has over 15 years experience and provides personal financial planning and wealth management to expatriates. Specializing in UK and US pension transfers. Tel: 089-970-5795 or email: freemancapital@gmail.com.

— Don Freeman

 

Get more from The Thaiger

📱 Download our app on Android or iOS
👋 Have your say on our Thailand forums
🔔 Subscribe to our daily email newsletter
📺 Subscribe / Join YouTube for daily shows
👍 Like/Follow us on Facebook
🐦 FOLLOW us on Twitter
📷 FOLLOW us on Instagram

image

Join the conversation and have your say on Thailand news published on The Thaiger.

Thaiger Talk is our new Thaiger Community where you can join the discussion on everything happening in Thailand right now.

Please note that articles are not posted to the forum instantly and can take up to 20 min before being visible. Click for more information and the Thaiger Talk Guidelines.

Click to comment

You must be logged in to post a comment Login

Leave a Reply

Archiving articles from the Phuket Gazette circa 1998 - 2017. View the Phuket Gazette online archive and Digital Gazette PDF Prints.

Follow Thaiger by email:

Thailand14 mins ago

Thailand News Today | OnlyFans content creators arrested on pornography charges | September 21

Thailand2 hours ago

Soldier allegedly assaults neighbours following horn honking

Thailand3 hours ago

Border agencies instructed to look out for gun smuggling along Myanmar border

Welcome back to Thailand!

Thaiger is getting behind local businesses for the restart of tourism in Thailand - up to 50% discounts across all advertising packages!

Coronavirus (Covid-19)3 hours ago

Tuesday Covid Update: 10,919 new cases; provincial totals

Thailand4 hours ago

Officials clarify Korat police van stopped at the beach after collecting murder suspect

Crime4 hours ago

OnlyFans content creators arrested by Thai police on pornography charges

image
Join the conversation on the Thaiger Talk forums today!
Thailand4 hours ago

Comments Galore! feat. Golf | Thaiger Bites | September 21

Cambodia5 hours ago

Scientists study bats in Cambodia to find clues about Covid

News6 hours ago

Update: government official that allegedly stole from fund meant for the disabled spent all the money on gambling

Thailand6 hours ago

Morning Top Stories | Reopening of entertainment venues, Manny Pacquiao for president | September 21 |

World6 hours ago

Flight restrictions to the US to ease in November – US government

Thailand8 hours ago

Bangkok re-opening Criteria, Thai Airways keeps Struggling | Good Morning Thailand | Episode 93

Thailand8 hours ago

Government warns that posting pornographic material is illegal following OnlyFans creator being questioned by police

Indonesia8 hours ago

Bali to re-open for international yachts with fully vaccinated crew, passengers

World8 hours ago

British Airways tests first ever net-zero carbon emissions flight

Morning Top Stories Thailand | Police to end protests, Human Trafficking | September 14 | Thaiger
Thailand1 week ago

Morning Top Stories Thailand | Police to end protests, Human Trafficking | September 14

Thailand7 months ago

Thailand News Today | Thai Airways in rehab, All go for Songkran | March 4

Tourism7 months ago

Phuket’s nightlife. Yes, bars and clubs are still open | VIDEO

Phuket7 months ago

Thailand News Today | Covid passport talks, Thai Airways heads to court | March 2

Tourism7 months ago

Phuket Thai food treats you need to try | VIDEO

Thailand7 months ago

Thailand News Today | Bars, pubs and restaurants ‘sort of’ back to normal | Feb 23

Tourism7 months ago

In search of Cat & Dog Cafés in Phuket Town | VIDEO

Thailand8 months ago

Thailand News Today | Gambling crackdown, Seafood market to reopen, Vlogger challenge | Jan 21

Thailand8 months ago

Thailand News Today | Covid testing for visas, Business impact, Vaccine approval | January 19

Thailand8 months ago

Thailand News Today | Weekend Bangkok bombs, Thailand fires, Covid update | January 18

Thailand8 months ago

Thailand News Today | Stray car on runway, Indonesian quake, 300 baht tourist fee | January 15

Thailand8 months ago

Thailand News Today | Governor off respirator, sex-trafficking arrest, condo prices falling | January 14

Thailand8 months ago

Thailand News Today | Chinese vaccine, Thailand ‘drug hub’, Covid update | January 13

Thailand8 months ago

Thailand News Today | Bangkok may ease restrictions, Phuket bar curfew, Vaccine roll out | January 12

Thailand8 months ago

Thailand News Today | Covid latest, Cockfights closed down, Bryde’s Whale beached | January 11

Trending