Monday, 02 November 2020
Written by Marc Chow, Head of Business Development & Partnerships of GAX MD
In light of the questions that we have received about ETFs, we aim to cover the basics and provide investors with an overview on ETFs in this article.
Many have asked what an ETF is when realising that MYTHEO invests into many ETFs within the 3 functional portfolios. An ETF, or better known as an Exchange Traded Fund, is basically a collection of securities – such as stocks, bonds or commodities – that often tracks an underlying index. To break it down further, I personally always prefer to refer to an ETF as a basket of stocks or securities within a particular index and to illustrate this further simplistically, I will be using the S&P 500 Index to further explain. The S&P 500 is a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies. The index is widely regarded as the best gauge of large-cap U.S. equities. Apple, Netflix and Disney are examples of stocks traded on the S&P 500 Index. The S&P 500 Index Fund is an ETF that tracks the movement of the S&P 500 Index. That means that by buying the S&P 500 Index Fund ETF, you would be buying the equivalent of the basket of stocks listed in the S&P 500 Index. This can be further illustrated via the diagram below.
As every MYTHEO portfolio can have up to 30 ETFs within the 3 functional portfolios, that means that you as an investor are investing into many baskets of stocks, bonds or even commodities that are diversified across 10,000 underlying securities. That is an unrivalled level of exposure and diversification for any investor made possible via MYTHEO.
Why has MYTHEO chosen to invest in ETFs, rather than other instruments such as direct stocks, bonds or the commodity itself? The reasons can be summed up via the key points below:
1. Access to many stocks across various industries
As mentioned above, by investing in ETFs, MYTHEO is able to achieve an unrivalled level of exposure and diversification for any investor. Our ETFs are also diversified across 87 different countries and are not solely focused on one particular region.
2. Low expense ratio and fewer broker commissions
Helping investors to lower their investment costs by buying into a basket of stocks rather than constantly trading a single stock or security.
3. Risk management through diversification
Refer to point 1
Another common question we get asked is how does MYTHEO buy its diverse range of ETFs. MYTHEO mostly invests in ETFs listed in the US due to the various types of ETFs available. MYTHEO selects ETFs that are most suitable for customers to be included in the investment universe. As many of MYTHEO’s ETFs are listed in the US, this does not mean that MYTHEO only owns US ETFs, as there are ETFs that invest in other countries or regions such as the iShares MSCI Singapore which invests purely into Singapore or the Market Vectors Emerging Markets ETF that invests into a variety of Emerging Markets. As a licensed Digital Investment Management service by the Securities Commission, MYTHEO is able to access these ETFs via an Online Broker, and the process of trading, rebalancing and even selling of a particular ETF is handled by our proprietary algorithm. This end-to-end process is further depicted by the diagram below indicating that MYTHEO is able to handle everything for the investor from start to finish.
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That concludes ‘ETFs 101’ which aims to cover the basics of ETFs to provide investors an overview on ETFs by covering the bases on ETFs. Do write to us if you have any thoughts or comments or if there is any other topic you would like us to cover in the future. In the meantime, do also follow us on Facebook, Instagram and LinkedIn as well as stay safe and invest in a moment.
Source: Investopedia, October 2020