Q I recall a previous article you wrote in April about the benefits of Exchange Traded Funds (ETFs). As world stock markets have fallen over the last month, I am interested to learn how ETFs have compared over, say, the last three months to global stock markets? I am interested in emerging markets and also soft commodities like grains.
A The two ETFs you mention are very different: one is an equity investment whereas the other is linked directly to the price of grain. You can however easily plot the performance of all ETFs against any index and you may be quite surprised with the results.
Over the last three months, the Morgan Stanley Capital International (MSCI) World Index has been flat. This index is a good measure of the world's stock markets as a whole. Had you therefore invested €1,000 into this index three months ago you would still be sitting on your original capital, i.e. no growth. Below are the returns from a selection of four ETFs - two emerging market equity and two soft commodities:
Wheat: +35%
Grains (Soybeans, Corn, Wheat): +8%
MSCI FTSE/Xinhau China 25: +24%
MSCI Korea: +5%
You can see how two very extreme types of investments have performed incredibly well over a period where global stock markets have been flat. One must note however that these are risky and one should only commit a small percentage of one's portfolio into such assets. You can, however, create a very diversified portfolio by using ETFs that include asset classes such as:
Equities - European, US, emerging markets;
Bonds - US and European Treasury bonds;
Energy - oil, natural gas;
Soft commodities - sugar, grains, live cattle;
Alternatives - global water, clean energy.
An entire portfolio can now be developed by using ETFs - the results of which mean much lower entry costs and management fees when compared to normal retail investment funds. They also allow investors to buy and sell during the day, i.e. they are not priced at the close of the day and investors can move in and out and not rely on a forward pricing mechanism - therefore remaining in control.
Past performance is no guide to the future and, except where amounts are guaranteed, the price of investments (and the currency in which it is denominated) may fall as well as rise. Your personal tax situation will depend on residence. Always consult a professional adviser. This article does not intend to give investment advice and its contents should not be construed as such. Readers are encouraged to seek professional advice on their personal financial situation.
Mark Hollingsworth is the director of Hollingsworth International Financial Services Ltd, licensed by the MFSA to provide investment services under the Investment Services Act 1994 and enrolled insurance broker under article 13 of the Insurance Intermediaries Act (Registration No. C32457). Tel: 2131-6298; e-mail: mh@hollingsworth-int.com; www.hollingsworth.eu.com.