It is time for young managers to move strategically to shake the globe. Courageous decision making in the turbulent financial world is the order of the day. Innovation of new products more so financial products would make them stay in the market. The Indian finance market does not provide many innovative opportunities for investors to invest unlike U.S. markets, nevertheless, ETFS (Exchange traded funds) are available in Indian markets like US markets. Most of us are familiar with mutual funds, a portfolio of different equity and debt in which one can trade easily. But many of us are not familiar with Exchange Traded funds (ETFS). By buying and owning an ETF, one can achieve successfully the strategy of diversification with lower investments of funds and increased return. It has the feature of diversification of index fund, the ability to sell short and also buy on margin. It is a good product for day trading also but that may not be the right strategy for accomplishment of long- term financial goals and objectives. I personally, may not prefer day trading of ETFs but it is a hot cake in the market for day traders.
The strength of passive ETFS is something so strong to build portfolio due to the basic feature of its expense ratios, which are lower than those of the average mutual fund. In the world the most widely known ETF is the SPDR, which is popularly pronounced as SPIDER. This ETF is superb to buy as it is a darling in any street- whether wall or dallal- wherever it moves. Anyhow there is no such product in Indian market. Passive funds generally do not protect investors and the asset class depreciates in a down market, for example if Sensex falls by 10% passive ETFs also fall by 10% but it is not so with dynamic ETFS, such lefts now exist and are quite interesting products.
ETF industry is growing rapidly in the recent past. AUM under ETF has touched 1trillion dollars in 2011. There are more than 1,000 ETFs available in US market and many more added daily. In India few ETFs are available and efforts are on to improve ETFs trading in India but as of date the market is not very active. ETFs generally compete with long term mutual funds. It has a market share of 10% in the total 11 trillion dollars market of US. Black Rock, Vanguard, Wisdom tree etc., are creators of ETFs. Look into the average return of these funds for the past three years and ascertain the tradeoff between the risk and the return of ETFs, one can find 9 out of 10 funds outperforming the benchmark return. Domestic ETFs have performed better than International ETFs even though international ETFs have diversified risk better, but failed on the risk return trade off. Young Managers have to move strategically to ensure they stay in the market and change the whole scenario in the market with global outlook.
