Rick Di Cristoforo (left), Antoinette Mullins and Thabojan Rasiah

The value of ETFs on the ASX climbed 4.7 per cent to $135 billion in the year to January, according to the latest data from the exchange. 

The popularity of ETFs have climbed steadily in the past nine years with $10.7 billion worth of ETFs available to Australian investors in through 96 products in 2014, expanding to 239 this year, outstripping the number of available managed funds for the first time. 

The variety of ETFs include passive index-tracking funds, non-equity funds such as those exposed to bonds, commodities and currencies, those with strategies such as ESG or net zero, smart beta or factor based and actively managed ETFs which are  managed by a portfolio manager, who ‘actively’ manages the basket of underlying stocks.  

Actively managed ETFs, if they add value to advisers’ clients, are worth exploring, Morningstar director of research and investment products Rick Di Cristoforo tells Professional Planner. 

However, while ETFs are affordable and provided access to asset classes to diversify portfolios, there are nuances in models and managers which financial advisers needed to be aware of, he adds. 

“There’s an inherent obligation to understand portfolios and products for clients and our obligation is to assist the adviser to understand the fact base of what the portfolio has,’’ Di Cristoforo says. 

“Given we’re in the business of providing that data you would expect us to say that’s important but also, if you look at it from an obligation point of view, advisers should know the investment they’re looking at and match them to their client.” 

Steps Financial adviser and director Antoinette Mullins recommends actively managed, index and passive ETFs to her clients as an investment risk diversifier. 

“More and more we are finding clients want low-cost investment options on share trading platforms that they already use, such as CommSec,’’ she says. 

While there were ETFs for fixed interest, passive, gold and other asset exposures, they usually had an expense ratio of between 0.5 and 0.1 per cent which was typically lower than managed fund fees, she says. 

Like managed funds, however, it was important to choose an ETF managed by people who “know their business” which is why she reviewed ETF performances at least yearly for clients. 

Rasiah Private Wealth Management founder Thabojan Rasiah took a more conservative view of ETFs and managed funds for his clients, with the latter having some 75 years of performance data compared with the more recent option of ETFs. 

While passive index ETFs provided access to a range of listed assets were transparent, some synthetic ETFs were higher growth and risk and deserved more scrutiny. 

These ETFs did not invest in assets directly but exposed investors to harder-to-access investments like commodities through derivatives such as futures contracts, for an oil-focused ETF for example.