>EXCHANGE TRADED FUNDS: Strategy Implementation with ETFs

Below, we highlight eight strategies that can be implemented through the use of ETFs.

■ Efficient asset allocation
ETFs can be used by fund managers to quickly reduce or increase exposure to a particular sector, industry, country or region.


■ Equitization and cash flow management
ETFs can be used to gain exposure to the market effectively, thus reducing a fund’s cash drag.


■ Index/portfolio changes
ETFs can be used to manage flows arising from portfolio rebalancing events more effectively.


■ Hedging
ETFs can be used to hedge a portfolio in various sectors, industries, regions, countries, etc. Since ETFs can be shorted on a downtick, this is a useful advantage.


■ Short term tactical exposure
The convenience and speed of trading ETFs enables fund managers to take advantage of short-term opportunities.


■ Relative value strategies
The ability to short-sell ETFs enables investors to take a view on the spread between two markets – on a sector or country basis.


■ Efficient access
Retail investors can gain access to a particular market very efficiently. The lowcost and small denomination make them very attractive for retail investors. Inaddition, they may be used to provide exposure to nondomestic markets that maytrade in different time-zones and currencies.


■ Arbitrage opportunities
Professional market participants may exploit arbitrage opportunities between the ETF, the underlying market and the futures (if available).


RISH TRADER