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SINGAPORE: Exchange-traded funds (ETFs) are gaining popularity among investors who are facing volatile equity markets around the world.
These funds hold assets such as stocks or bonds and allow investors to spread out their levels of risk and exposure to any one asset.
They have been traditionally more popular in mature markets like the United States and Europe, but such products are getting more attention in Asia in light of the current global economic downturn.
The valuations of ETFs this year have soared 255 per cent as at the end of September compared to last year.
And Lyxor Investment recently launched five ETFs on the Singapore Exchange. It says investors are drawn to the diversity offered by such funds.
Managing director of Lyxor Investment, Joseph Ho, said: "If you were holding five banking stocks, you would not be able to sleep at night, because you never know... The next day, you open up the newspaper, and one of the names you are holding could appear on the front page.
"So it makes a lot of sense that if you want to maintain a certain exposure to the finance sector, you will be better off holding a financial sector ETF, which has 20, 30 names."
ETFs are traded on exchanges, and offer greater liquidity and accessibility for the average retail investor.
However, their diversified nature also means they are less responsive to market fluctuations in the short-term.
"You have to ride through the volatility in between, so the time horizon has to be at least five years, 10 years, before it can actually give you the kind of capital appreciation as well as the yield," said an investment analyst at SIAS Research, Alan Lok.
Experts say that ETFs are appealing to longer-term investors seeking a more liquid alternative to unit trusts.
- CNA/yt
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