The most important decision of asset management is allocation
Asset class weightings between equity and fixed income investments largely explain the future returns and risk of the investments in a well diversified portfolio. This is why Obsido’s main objective is to define the optimal asset allocation for each individual client. This optimal asset allocation is the cornerstone of our asset management and your portfolio.
ETFs as investments
ETFs are (stock exhange listed) funds which can be traded on the stock exchange the same way as shares. The abbreviation ETF derives from the words Exchange Traded Fund.
ETFs are somewhat similar to ordinary mutual funds apart from stock exchange trading. Combining the benefits of funds and shares ETFs offer a diversified, efficient, transparent and cost effective access to global investment markets.
Passive ETF instruments are normally used for tracking the return of chosen indexes (for example S&P 500 index) and for offering the investor the same return as the chosen index after expenses. Through ETFs investors can invest into a wide range of companies (shares), bonds or other asset classes (such as real estates).
Choosing the right ETFs to a portfolio is not always an easy task given the thousands of potential ETFs from which to choose from. Our ETF-specialized portfolio managers will help you in this.
It is important to pay attention to the following points when choosing an ETF:
- the structure of the ETF and legal factors
- taxation and currency
- the ETF’s capability to replicate the return of the benchmark index
- efficiency of the trading and valuations
- possible securities lending
- the total costs related to the ownership
What are the benefits of UCITS ETF -funds?
- Efficiency and ease of use
Shares of ETFs can be traded in stock exchange like a common stock which makes buying and selling ETFs simple, efficient and easy. - Cost-efficiency
The management fees of ETFs are significantly lower compared to traditional active mutual funds. - Transparency
ETFs makes it easy to keep track where the portfolio invests and how much you pay for your investments. - Diversification
With ETFs it is possible to have wide investment opportunities to different asset classes, industries, regions and investment styles.
Benefits for systematic rebalancing
The rebalancing of the investments is executed on the basis of the investor’s long-term asset allocation strategy. Rebalancing reduces risk, invests surplus cash effectively and keeps the investments on track. Disciplined rebalancing also eliminates subjective and emotional decision making.
Obsido’s asset management process is based on systematically continous rebalancing program. Our continuous reviewing of the investments helps us to balance your asset classes every time they differ significantly from the optimal asset allocation.
However the rebalancing of the investments is not automatic. Our computer programs alert the need for a review and each rebalacing review is individually assessed by our asset management staff. For example, expected cash flows, taxation and trading cost minimization play important roles in rebalancing decisions.
Core-satellite strategy
ETF based core-satellite investing is a strategy that divides a portfolio into two components:
- The” core” consists of market-weighed ETFs, which are used to get the planned exposure on the major asset classes and to achieve the wanted risk/reward profile.
- Smart Beta ETFs are used as” satellites” to add value and returns.
Maintaining core and satellite exposure to different indices through ETFs allow you to potentially benefit from outperformance, while minimizing the impact of underperformance. Smart Beta, in turn, exploits in the investing process the systematic anomalies discovered in the markets; a good example is better historical return of small cap value shares compared to market cap weighed investments.
Satellite investments may contain a higher risk than market weighed ETFs. This risk can be observed from the satellite investments’ positive or negative deviation from the returns that market cap weighed indexes generate. Thus satellite investments require patience from the investor, just like successful investing in the long term always does.
Diversification, the” free lunch” of investing
Obsido’s asset management is based on a wide diversification of the holdings, both between and inside the asset classes. Numerous independent academic studies have proven that diversification is one of the genuine” free lunches” in investing.
In our asset management, we don’t strive to predict which asset classes will generate better returns than the others in the short term. Instead, our goal is to ensure that our client receives the matching return associated to his individual risk profile.
Investments are diversified extensively into instruments across different asset classes, regions, industries and currencies in order to generate genuine cash flow to the portfolio. Instead investments in which the price discovery is based solely on the investor’s opinion and speculation of the right price are not part of our asset management.
