ETF PORTFOLIO MANAGEMENT

Transcription

1 ETF PORTFOLIO MANAGEMENT STRATEGIES STANBIC IBTC ASSET MANAGEMENT LIMITED

2 CONTENTS Sections 1. Portfolio Management Strategy 2. Passive Strategy 3. Active Strategy 4. Semi Active Strategy 5. Q&A

3 Portfolio Management Strategies 3

4 Portfolio Management Strategies Portfolio Management Strategies are techniques or methodologies adopted by investors or investment managers to achieve a pre defined investment objective. For the purpose of this discussion, a portfolio is a combination of securities held or managed by an investor or investment professional. A well structured portfolio offers diversification and higher risks adjusted returns There are 3 basic portfolio management strategies Passive Management Strategy Active Management Strategy Semi Active Management Strategy 4

5 Portfolio Management Strategies: Passive Passive Management Strategy With this strategy, the investor aligns himself / herself with the market. The investor usually has a predetermined long term investment objective and may not have particular / specific views on the individual constituents / securities in the asset class. The investor s views are usually market views. Thus, the investor s portfolios moves closely in line with particular asset class or market. The idea is to minimize cost of investment to avoid regrets associated with either an error of commission or omission as a result of making specific security bets In passive management, investors expect a portfolio that closely replicates the investment weighting and returns of a benchmark index and will often invest in an index fund and / or ETFs 5

6 Benefits of Passive Management Strategy Suitable to a buy-and-hold strategy Limited transaction costs, increased tax efficiency, lower management fees and portfolio diversification are some of the advantages. Cost effective diversification of a portfolio Captures the total return of the market over a long period 3 years performance of The NSE 30 Index vs The NSE All Shares Index 2500 Replicate Returns NSE30 Index NSE ASI 6

7 Portfolio Management Strategies: Active Active Management Strategy refers to a portfolio management strategy where the investor makes specific investment bets with the goal of outperforming an investment benchmark index. It requires the periodic changing in the weighting of the portfolio components as the investor s outlook for the market, industry, sector, and securities changes The performance of the portfolio is measured periodically to reflect the effect of strategy Develop Strategy Execute strategy Monitor performance 7

8 Portfolio Management Strategies: Active (Cont.) This strategy aims to deliver above-average returns by taking short and term trade bets on the market. Active ETF Investment strategies The tradability of ETFs makes them good tools for portfolio management This Strategy can be achieved by designing a multi ETF portfolio. This strategy offers the convenience of adjusting portfolio exposure on many front, industry/ sector, market capitalization and asset class bases on future market outlook Asset Allocation Sector Rotation Style Investing across different industries/sectors of an index help protect the portfolio from adverse market conditions in one particular sector ETFs are traded as individual equities, allowing investors to rebalance at will as they build their portfolios A wider re-allocation bands allows for consistent alpha 8

9 Market Timing The ETF is traded daily and investors can achieve their expected return if they are able to time the market correctly and consistently buy when prices are low and sell when they are high. This strategy will obviously yield much higher returns than simply holding an investment over time, but it also requires the ability to correctly gauge the markets % % -2.85% Right market timing provided the opportunity of a strong performance in a volatile market Relatively flat Buying opportunities Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 NSE ASI 9

10 Portfolio Management Strategies: Semi Active Semi Active Management With this strategy, the investor holds a portion of his/her portfolio in an index / ETF while the remaining portion is available for active trading. This strategy enables the investor to benefit from the overall market movement while also making active bets with some selected securities. Another semi active strategy is diversification. Here the investor holds a basket of ETFs and changes their weighting in the portfolio based on his / her view on the sector / indices / industry NewGold ETF ETF Portfolio % Weight Vetiva Griffin 30 ETF Basket of ETFs Lotus Halal Equity ETF STANBICETF % NEWGOLD 25.00% VETGRIF % LOTUSHAL % Stanbic IBTC ETF 30 Total

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