Bell Potter: Managing Risk, September ETF Flows & Performance

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Managing Risk – Asset Diversification.

Employing a strategic asset allocation (SAA) can minimise the overall level of portfolio risk for a given level of return. The investment strategy focuses setting target weights to the asset classes in a portfolio. Weightings are primarily allocated based on the investment objective, time horizon and, most importantly, the risk tolerance of the investor. Support for SAA is provided by the fundamental benefit of portfolio diversification. Combining a group of assets that are less than perfectly correlated can reduce the overall risk of a portfolio for a required rate of return. The theory, known as Modern Portfolio Theory, was pioneered by Harry Markowitz for which he was later awarded a Nobel Prize. It is centered on the notion that the return of an asset should not be viewed in isolation, but assessed on its contribution to the overall portfolio risk and return. The portfolios that provide the highest return for a defined level of risk fall on what is called the efficient frontier. These combination of assets are deemed to have greater diversification and be less susceptible to nonsystematic risk. (Continued in the report)

Chi-X Launches Funds Market

Chi-X Australia launched a funds market on 15 October 2019. Chi-X Funds will aim to include ETFs as well as Quoted Managed Funds (QMFs), which are similar to the ASX listed Exchange Traded Managed Funds (ETMF) which are actively managed. Chi-X has stated lower listing and trading fees along with less stringent listing requirements compared to the ASX as benefits of listing funds on the Chi-X. Currently there are 159 ETFs that are available for continuous trading on the exchange, with Chi-X stating that up to 40% of trading volumes in Australian ETFs already takes place on the exchange.

For full details refer to the detailed report below.

About William Gormly

William Gormly is an ETF/LIC Specialist at Bell Potter Securities. Will provides comprehensive coverage of the ETF and LIC sectors, producing a range of highly regarded reports covering investment fundamentals, asset class structure and cost, and the role of managed investments in portfolios.

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