iShares & EDHEC sponsored a recent seminar on the use of ETFs in the management of core-satellite portfolios. Core-satellite investing is in essence a variation on the approach of mixing long term holdings with shorter term holdings within a given portfolio.
ETFs are excellent tools to build rapid diversification as well as to target specific investment areas. There are numerous specific strategies that ETFs allow the investor to use: Core Satellite; generating income by lending ETF long holdings; tactical rotation amongst countries, styles, sectors or caps; reducing concentration risk; fixed income exposure; alternative asset class exposure.
Ishares are the dominant provider of ETFs in London, & they continue to grow their range, with the recent launch of three new specialised funds investing in private equity, global water & UK property. More are planned for 2007, and it seems inevitable that ETFs will be seen more & more as a viable alternative to mainstream fund investing as a way to gain exposure to themes, sectors, geographies & investing styles.
Last year the iShares FTSE 100 returned 13.89%, some 54 basis points, or just over .5%, behind the benchmark. The total expense ratio for the fund is .40%. The fund size is around £1.5bn, and it also pays a small dividend.
Looking at the technical picture, for now, there is a major hurdle to breach at 645, which if we were to do so would be a strong clue from the market that the current headwinds have abated. Time will tell whether the sharp bounce off the recent bottom was just that, a sharp (but potentially vulnerable) bounce.
