Mr Zingg also says it is important to note that for small ETFs the bid-offer spread reflects the bid-offer spread and any other costs such as taxes to trade the underlying market, while for large and liquid ETFs the spread can be smaller than these costs, making the ETF cheaper to trade than the underlying market.
“Traditional funds do not normally have a bid-offer spread, but they do often carry an initial charge, payable to the fund manager,” he adds.
“There will be some variation in share class availability and domiciles and sometimes the best index mutual pricing is only available for large institutional clients. However, the pricing of ETFs through a NAV means that it is uniform for all unit holders,” admits Ms Perryman.
She points to the broad range of exposures that ETFs provide compared to index funds which are limited to tracking the constituents of a stockmarket, such as the FTSE 100 or MSCI World.
This means investors have far more choice in what asset classes and regions they can allocate to through ETFs.
Provider ETF Securities, for example, specialises in commodity and precious metal ETFs.
Precision instruments
“The range of market exposures – as well as the granularity of exposures – available via ETFs is another distinguishing factor,” says Ms Rebello.
“For example, we have a range of ETFs that provide exposure to specific mainland China ‘A-shares’ sectors. ETFs therefore serve as a useful access vehicle for all types of investors to gain exposure to a wide range of markets. ETFs also cover all the major asset classes, and even alternative asset classes like private equity.”
In December last year, Vanguard launched an ETF offering regional exposure to investment grade US dollar denominated debt issued by governments in the emerging markets, the Vanguard USD Emerging Markets Government Bond Ucits ETF.
In fact, there are more than 5,000 ETF products globally, according to Ms Harper which, rather than adding to the complexity of choosing an ETF product, she believes means advisers can use those as part of an overall centralised investment proposition.
She goes on: “So using them as really tight, precision instruments rather than just having your core exposures and especially as we go into a messy macro environment right now. You’re looking at things like GBP hedged products, which could certainly help around [president] Trump and Brexit.”
