The best ETFs for volatile markets

How ETFs can help diversify your portfolio and protect against share market volatility.

In a three part video series, Stockspot Founder & CEO, Chris Brycki, discusses how exchange traded funds (ETFs) can help to diversify your portfolio and protect against the current share market volatility.

ETFs provide diversification during volatile times

Share markets around the world have notched up falls of over 30% over the last month as fears of the coronavirus have increased. Diversification across different industries, countries and asset classes has never been more important to cushion investment portfolios from the brunt of share market falls.

In February 2020 shares fell by 7.8% while gold counterbalanced this move by rising by 7.8%.

In this video Chris discusses why defensive assets like high grade bonds and gold have historically performed well when shares fall. This makes them important building blocks to have in any portfolio.

ETFs that track Australian shares, government bonds and gold have continued to trade in an orderly way during the 2020 market volatility, disproving some common ETF myths.

Which ETF is best?

With over 200 ETFs listed in the Australian Securities Exchange (ASX), it can be tough for investors to choose the best ETF in each asset classes.

In this video Chris discusses the key factors Stockspot considers when selecting ETFs for clients.

Our advice is to focus on 4 key metrics:

  1. Fees – the less the pay, the more return is left for you. Higher ETF fees are a drag on long term returns, so it’s important to find low cost ETFs.
  2. Size – when a new ETF launches, it can take some time to gather investor money. ETFs that dont grow fast enough can shut down. It’s important to pick ETFs that have ample asset size (ideally $50 million plus) to avoid this risk.
  3. Liquidity – this refers to easily being able to buy and sell ETFs. You want to know you can invest and get your money out at anytime, so monitoring the average trading volume for ETFs is important as well as the average spread between buyers and sellers.
  4. Track record of the index – all index ETFs track a market index, but some indices have not been around for very long. We choose ETFs that have well established track records over many years.

Top ETFs for 2020

The rise of global share market ETFs and fixed income (bond) ETFs have increased choice for Australian investors.

Chris summarises Stockspot’s top ETF pick for three important asset class in this video.

  • Australian share ETFs
  • Global share ETFs
  • Australian bonds ETFs

Top tips for building an ETF portfolio

ETFs continue to be the most effective way to build diversified portfolios and protect against market volatility. Stockspot exclusively recommends ETFs in client portfolios for this reason. Selecting the best ETF products, combining them in the right way and periodically rebalancing them is the key to success when investing in ETFs.

Investment Associate

Marc has previously worked for Morgan Stanley, AMP and KPMG. He holds a Bachelor of Business (Finance/Accounting) from the University of Technology Sydney (UTS), and has completed his Chartered Financial Analyst (CFA) Level 1.

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