ETFs from iShares blazing new trails for Australian investors

ETFs offer unbeatable advantages: diversification across themes, sectors, geographies and financial markets; transparency and liquidity — all at a low cost compared to actively managed funds.

EFTs offer liquidity, transparency and diversity across geographies, markets, sectors and thematics at a low cost

Financial markets continue to be in a state of flux, with investors searching for ways to manage their portfolios against the backdrop of rising interest rates and greater volatility in the macroeconomic environment.

Investors grappling with conflicting narratives over the Fed policy path and health of the global economy are looking at ways to protect portfolios.

Exchange-traded funds (ETFs), which enable millions to access investments across geographies, asset classes and themes at a low cost, are one way for investors to add selectivity and nimbleness to their portfolios, says global financial services firm BlackRock. The world’s largest asset manager, which launched its trademark iShares ETFs in 1996 now has more than 1300 ETFs listed globally, including over 40 listed in Australia.

“Given the uncertainties out there, BlackRock is encouraging investors to consider being more tactical and granular in finding new investment opportunities, which is the trademark of the various iShares offerings,” said BlackRock Australasia Lead ETF Specialist, Tamara Stats. “”For example, we see healthcare as a defensive opportunity coupled with innovation-driven growth. Ageing populations provide long-term demand and indeed growth opportunities for healthcare products and services — and this demand will continue for decades to come.”

“The S&P Global 1200 Healthcare Index offers diversified exposure to the global healthcare sector, which is one of the most dynamic in the world economy. The index covers 10 sub-industries that span various segments of the healthcare value chain, from healthcare equipment and biotechnology to life sciences tools and services,” adds John Welling, Senior Director Global Equity Indices at S&P Dow Jones Indices.

“The index captures the performance of leading healthcare companies across major markets around the world, which tend to reflect drivers such as ageing populations, rising demand, and technological advancements.”

ETFs offer unbeatable advantages for investors: diversification across themes, sectors, geographies and financial markets; transparency, in the sense of being able to see where the money is invested; liquidity, or the ability to buy and sell when they want to; all at a low cost compared to actively managed funds. As an example of diversification, iShares S&P 500 ETF (ASX: IVV), replicates the performance of the S&P 500 index in the US, giving investors exposure to the top 500 US listed companies in a single fund, while the iShares Core S&P/ASX 200 ETF (ASX: IOZ) brings home the performance by tracking the index of the top 200 companies in Australia.

While these ETFs are well-known to savvy investors as valuable and must-have additions to their portfolios, BlackRock has continued to innovate with iShares ETFs, capturing the advantages of investing in major themes worldwide, while being responsive to macroeconomic trends. BlackRock believes central banks will retain a restrictive stance on monetary policy, which Stats said should be a key consideration in any investment strategy.

“Rates will remain elevated. We don’t see massive cuts coming. We think with early signs that inflation cooling, the aggressive rate hiking cycle is working. However, the job is not done, so investors should be prepared to act within a rapidly changing environment.

“We also believe investors should be looking to take advantage of mega force trends such as the rapid rise of artificial intelligence technologies. These are structural changes in the economy that are greater than any macro-economic cycle,” she said.

“Artificial Intelligence is currently experiencing plenty of excitement, but we do think that it is a mega force for investors to capitalise on now, not just in the future. Other mega trends include changing demographics, healthcare, the changing nature of banking systems, and the transition to the lower carbon economy.”

iShares ETFs also offer greater access to asset classes that used to be the domain of specialist fund managers, such as fixed income. Fixed income products provide vital diversification from equities, offer opportunities for income, and are an essential exposure for any multi-asset investment portfolio.

“Access to the bond market can be challenging, the ETF provides an easy mechanism for investors to gain exposure to a diverse fixed income portfolio in one simple trade Ead said. “Not only is BlackRock a pioneer of bond ETFs globally, but it also has the largest fixed income ETF range available in the Australian market.

“Our ETF range provides fixed income portfolio building blocks giving choice to Australian investors. For example, in the current environment, inflation remains a focus for investors and iShares offers the only inflation linked bond ETF in the market.”

While the growth of exchange traded products has been rapid in recent years — the Australian market has enjoyed 30 per cent year-on-year growth — assets under management in ETFs are still only a fraction of the global financial market. As at the end of June 2023, ETFs still only account for 12.6 per cent of equity assets in the US, 8.0 per cent in Europe, and 4.7 per cent in Australia.

“That gap is quite significant, and we think that it will continue to narrow as the take-up of ETFs gains pace with more Australian investors,” Stats said.

“We see a tremendous runway for the growth of ETFs in the Australian market. BlackRock’s purpose is to provide our clients with overall financial wellbeing. Exchange-traded products open investment opportunities to everybody, and we give investors a credible choice in the type of vehicle they are investing in, as well as the range. An ETF is a diversified portfolio of securities that trades on an exchange.

“When an investor’s view changes, they do not need to trade hundreds of individual securities, they can achieve exposure to these securities in one trade. Applying the old adage of don’t put all your eggs in one basket is simple with ETFs,” said Ead. He says investors also want the ETF to do what it says on the tin.

“It is harder than you think, and that is where the global expertise of an investment manager like BlackRock is important. iShares has been a leader in the Australian ETF marketplace for more than a decade because of the product quality and investor experience,” Ead said.

“We are the global leader in ETFs, the products are backed by experienced investment professionals managing funds on a global platform that provides operational scale and portfolio risk analysis to achieve some of the best outcomes for clients.

“We bring the global knowledge of the firm into our ETFs in Australia which is a huge benefit to investors.”

ETFs, by their nature, can be both trading vehicles or buy-and-hold investments.

“Because of the fact that ETFs are liquid and there are live prices throughout the trading day, you can be a day trader and use ETFs to express your personal views. However, where we see ETFs really shine is for buy-and-hold investors as we certainly like to have that longer term view,” Stats said.

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This content was produced for iShares by BlackRock. Read our policy on commercial content here.

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