ETFs: A great way to diversify
Offering simple, low-cost diversification, exchange-traded funds (ETFs) represent truly valuable opportunities for investors. And that diversification opportunity has only gotten better as the popularity of ETFs has grown and the variety of ETFs available has expanded.
Quite simply, the opportunity to invest in an ETF by sector, country, currency, investment style or asset class is virtually endless.
Buy a company or buy the market?
Because ETFs typically try to replicate a particular index, they can provide exceptional diversification for an investor looking to gain exposure to a particular area of the market.
For example, if an investor wanted to invest in U.S. markets, one option would be to purchase stocks of one or two large American companies. The drawback, however, is concentration risk: the investor’s return potential is now tied to the fate of one or two individual U.S. names.
Conversely, by investing in an ETF that seeks to replicate the S&P 500 Index, which represents 500 of the largest companies in the U.S., the investor’s return potential is now tied to, or diversified across, a basket of U.S. large-cap names.
Best of both worlds?
This simple example can be applied to any potential area of focus – from sectors and countries to investment styles and asset classes. From a diversification standpoint, an ETF offers the best of both worlds: an investor can hone in on specific areas of the market while benefiting from diversification – that can help enhance return potential and help reduce risk – within each area.
Commissions, management fees and expenses all may be associated with exchange traded funds (ETFs). Investment objectives, risks, fees, expenses and other important information are contained in the prospectus, please read it before investing. ETFs are not guaranteed, their values change frequently and past performance may not be repeated.
Manulife ETFs are managed by Manulife Investments, a division of Manulife Asset Management Limited.