ASX can aid investors with a range of product options and information.

Managing your portfolio during the Coronavirus (COVID-19) pandemic can seem daunting due to elevated sharemarket volatility and uncertainty.

For some investors, the main challenge is protecting wealth. For others, it is about knowing when and how to re-enter the market to build long-term wealth.

Rebalancing asset allocations are another consideration: your weightings in Australian and global shares, fixed interest, property and cash may have changed significantly during the past few months and require rebalancing to meet portfolio targets.

ASX has a range of product solutions, information and education that can help. The starting point is understanding what is available and how different ASX products – across a range of asset classes – suit different portfolio goals and investors.

If you are unfamiliar with products such as Exchange Traded Funds (ETFs), or want more information on fixed income for example, consider ASX free online education courses. The courses simply explain the features, benefits and risks of these and other products.

It is especially important during periods of high volatility to have access to share-price information and company announcements. ASX Announcements lists all company announcements, including those relating to capital raisings. You can search for announcements by ASX company code or follow the day’s main announcements.

As always, seek advice from a licensed financial adviser or do further research of your own before changing your portfolio. Every investor is different, so take the time to understand if a product suits your needs, risk tolerance and investment timeframe.

Here are four issues that retail investors may consider during the COVID-19 pandemic, using Exchange Traded Fund strategies (ETF). The examples below are for educational purposes only and should not be considered in any way as product, index, market or issuer recommendations.

1. I want to buy shares after the sharemarket has fallen

Consider an investor who believes the sharemarket has fallen too far and that now is a good time to buy shares. He buys a bank stock, a telco and supermarket retailer.

An alternative strategy is buying an ETF over the S&P/ASX 200 Index. An ETF is an index fund that aims to replicate the price and yield performance of an underlying index.

Rather than buy a few stocks directly and take that risk, the investor gains exposure to 200 companies through a single ETF, thus improving diversification. ETFs are bought and sold like shares on ASX and have lower fees than comparable active managed funds.

Trading volumes in ASX Exchange Traded Products spiked during March 2020 and there were strong net fund inflows into ETFs over the S&P/ASX 200 index. The latest ASX Investment Products Report provides a snapshot of key trends during March and April.

During periods of high volatility, some investors prefer to “buy the market” through an ETF rather than buy individual companies, given the uncertainty.

Buying an ETF over the S&P/ASX 200 or a similar index suits investors who have a view on the direction of the Australian sharemarket rather than an individual company.

ETFs that provide exposure to Australian shares  include the SPDR S&P/ASX 200 Fund (STW), Vanguard Australian Shares Index ETF (VAS), iShares Core S&P/ASX 200 ETF (IOZ) and BetaShares Australia 200 ETF (A200).

2. I want to capitalise on shorter-term investment opportunities

A more experienced, active investor believes a particular market, sector, commodity, currency or other asset has fallen too far during the COVID-19 pandemic.

For example, the investor thinks the United States sharemarket is undervalued and wants to back her view through an ETF over the S&P 500 Index in the US. ASX-quoted global ETFs provide exposure to sharemarket indices in a range of countries and regions.

The investor uses the iShares S&P 500 (AUD Hedged) ETF (IHVV) because she wants to eliminate currency risk.

Another investor believes global technology companies will be among the first to recover after COVID-19 and wants to back that view. An expanding range of ASX-quoted ETFs provide exposure to global, US or Asian technology companies, or sub-sectors within technology such as cybersecurity, robotics and artificial intelligence.

Back home, an investor believes Australian bank stocks have fallen too far because of uncertainty about bank dividends. Rather than buy an individual bank stock, he buys an ETF such as the VanEck Vectors Australian Banks ETF (MVB) or the SPDR S&P/ASX 200 Financials (Ex A-REITs) Fund (OZF) for broader exposure to the financial sector.

Elsewhere, an investor has a positive view on the gold price, believing it will rise as investors favour the precious metal as a ‘safe haven’ in volatile markets. She buys the ETFS Physical Gold ETF (GOLD) or an ETF issued over global gold-mining stocks, such as the VanEck Vectors Gold Miners ETF (GDX) or the BetaShares Global Gold Miners ETF – Currency Hedged (MNRS).

3. I want to diversify my portfolio

Market volatility during COVID-19 reinforces the importance of portfolio asset allocation. That is, having your investments spread across different asset classes to improve diversification, relative to your investment goals, risk tolerance and timeframe.

A balanced portfolio (within five years to retirement), for example, might look like:

Source: ASX

Investors can build these or other asset allocations (for different types of portfolios) via ASX.

There is a large range of fixed-income ETFs over Australian and global fixed-income indices available on ASX. Investors use these ETFs to gain exposure to government bonds, different grades of corporate bonds, or a mix of sovereign and corporate bonds.

As with all ETFs, it pays to understand the underlying index. Some bonds have a higher risk profile than others. Choosing fixed or floating-rate bonds, and issues such as credit and liquidity risk, and maturity, are important considerations when investing in fixed-income ETFs.

The ASX free online Bonds course is a good way to learn about bond basics.

For other portfolio asset allocations, ETFs over global indices can be used for international share exposure in portfolios and Australian Real Estate Investment Trusts (A-REITs) provide exposure to property assets. 

Investors can also use ETFs to build portfolio asset allocations in alternative assets such as global infrastructure or commodities.

Cash ETFs such as the BetaShares Australian High Interest Cash ETF (AAA) or iShares Core Cash ETF (BILL) are an option for investors who do not want funds tied up in bank term deposits and seek greater liquidity from having cash exposure through an ETF.

Investors can also use Listed Investment Companies and Trusts or buy unlisted managed funds through the ASX mFund Settlement Service to diversify portfolios through asset allocation.

4. I want to rebalance or tilt my portfolio

During periods of high market volatility, portfolio asset allocations may deviate significantly from their target and require rebalancing. In the above example, the balanced portfolio that sought 30 per cent Australian share exposure may have 20 per cent exposure after market falls.

The process of setting portfolio asset allocations and rebalancing periodically is known as Strategic Asset Allocation. Academic studies have shown that asset allocation rather than individual stock picking is the biggest driver of long-term investment returns.

ETFs are a convenient portfolio-rebalancing tool. Here, the investor buys an ETF over the S&P/ASX 200 Index to lift his or her Australian equities exposure back to the targeted 30 per cent allocation in their portfolio

Tactical asset allocation refers to the process of increasing or decreasing target asset allocations to capitalise on shorter-term opportunities.

For example, an investor becomes bullish on Australian equities and bearish on international equities. The investor ‘tilts’ his or her Australian equities allocation from 30 per cent to 35 per cent, and decreases international equities exposure from 20 per cent to 15 per cent.

ETFs are a useful tool for tactical asset allocation because they can be bought and sold quickly via ASX and are liquid – an important consideration in volatile markets. Because ETFs replicate indices, they are a simple way to increase or decrease asset-class exposure.