Many people use ETFs to track the performance of certain stock markets or indices. However, this means your investments will always be at the mercy of the performance of stock markets and could leave you open to risk in the event of a crash.
In the last ten years an increasing number of markets began to move in unison, going up when there are positive developments and retreating on bad news. This makes it more difficult for investors to achieve true diversification away from the performance of the stock markets – particularly if investing purely in stocks and shares.
This has led to a search for assets whose returns are not linked to the core financial stock markets. ETFs provide a way to access many different and diverse elements of market exposure. This can include areas such as commodities, infrastructure or property.
These assets would be very difficult for ordinary investors to access otherwise. Infrastructure, for example, requires lots of money up front and is not easy to buy or sell. ETFs lower the barrier for entry by offering low-cost and transparent exposure to this theme.