- Pershing.com |
- Ideas Without LimitsSM |
- Events |
- News |
- Careers |
- About Us |
- Contact Us
Sponsored Article by State Street Global Advisors
Issue 2 August 2008
The unique attributes and benefits of exchange-traded funds (ETFs) appeal to both institutional and individual investors. Typically structured like mutual funds, but listed and traded on an exchange as are stocks, ETFs are flexible trading and investment vehicles that can be used to satisfy a number of critical investment needs.
Asset Allocation
Savvy investors are discovering what institutional investors have known for some time: asset allocation, not security selection, drives long-term investment results. However, advanced asset allocation strategies have been difficult for many individual investors to implement, given the costs and asset size required to achieve proper levels of diversification.
That is, until now. ETFs offer investors a sophisticated tool to efficiently gain exposure to broad market segments, encompassing a wide range of asset classes, equity market capitalizations, styles, and sectors. This enables investors to build customized investment portfolios consistent with their financial needs, risk tolerance, and investment horizon.
Risk Management
ETFs are an excellent hedging vehicle because they can be sold short. The broad array of ETFs available today creates risk management approaches for individuals and smaller institutions that only large institutional investors previously could access. Also, the smaller denominations in which ETFs trade relative to most derivative contracts provide a more accurate risk exposure match for portfolios of any size. Furthermore, in the United States, ETFs can be shorted on a down tick, providing maximum trading flexibility. The increasing use of incentive stock options has also created a growing segment of affluent investors with unique risk management needs. By using sector ETFs, these investors can hedge their concentrated exposure to the companies they own or work in and effectively diversify their risk exposure across the broader equity market.
When investors change asset managers, they are often concerned with how to preserve equity exposure during the transition. One way to achieve this goal is to liquidate the portfolio and reinvest the assets in an ETF with a high correlation to the benchmark of the active manager. Once established, the new manager can then sell the ETF shares to fund the purchase of the new portfolio’s holdings.
ETFs trade like stocks, are subject to investment risk, and will fluctuate in market value, so that when shares are sold or redeemed, they may be worth more or less than when they were purchased. The use of short selling entails a high degree of risk, may increase potential losses, and is not suitable for all investors. Please assess your client's financial circumstances and risk tolerance prior to short selling. In addition to the normal risks associated with equity investing, narrowly focused investments and investments in smaller companies typically exhibit higher volatility.
To learn more about SPDRs ETFs, please call State Street Global Advisors at (866)787-2257 or visit www.spdretfs.com.
Before investing, consider the funds’ investment objectives, risks, charges and expenses. To obtain a prospectus which contains this and other information, call 1-866-787-2257 or visit www.spdretfs.com.
Read it carefully. The “SPDR®” trademark is used under license from The Mc-Graw-Hill Companies, Inc. (“McGraw-Hill”). No financial product offered by State Street Corporation or its affiliates is sponsored, endorsed, sold, or promoted by McGraw-Hill.
Distributor: State Street Global Markets, LLC, member FINRA, SIPC
ETF SPOTLIGHT PREMIER PARTNERS |