Updated March 2024 | 5 min read

Investment trends aren’t always your friend

By Tony Kaye, Senior Personal Finance Writer

ETFs

Trendy ETF products can be enticing, but they don’t necessarily have staying power.

The growing use of exchange traded funds (ETFs) by millions of investors worldwide can easily be described as an investment trend that still has a long way to go.

Over the last 30 years, from the launch of the very first products, the global value of ETF investors’ assets under management has grown from zero to more than $10 trillion.

The Australian ETFs industry is now worth close to $200 billion, with more than 300 individual products listed on the Australian Securities Exchange (ASX).

But behind the phenomenal success story of the ETFs industry as a whole, there is also a warning to all investors.

And that’s the same warning that applies to any form of investment asset. Make sure you do plenty of homework before you invest into anything.

Not all ETFs are created equal

The majority of ETF investors worldwide use ETFs to gain exposure to hundreds, and sometimes thousands, of individual listed companies.

For example, the Vanguard Australian Shares Index ETF (VAS) invests across all of Australia’s 300 biggest companies, which are tracked by the S&P/ASX 300 Index.

Index ETFs effectively provide instant portfolio diversification, because the large basket of companies they invest in operate in many different business sectors.

By contrast, some ETFs use complex financial instruments such as derivatives to enable investors to leverage their positions and take short-term bets on whether a company’s share price will rise or fall.

Leveraged ETF products are not new by any means.

Australian investors can readily access other types of leveraged ETF products on the ASX. Unfortunately, some of these have delivered large losses at times because they’ve amplified the broader downturns experienced on global stock markets.

Bucking the trend

Investment trends, including trendy ETF products, can be enticing.

That’s especially the case when investors see that others have made quick, and sometimes very large, profits.

Fear of missing out (FOMO) on an investment opportunity is a key behavioural driver for many investors.

Yet, trendy investments and products don’t necessarily have long-term staying power.

That’s because investment trend seekers often decide to take out their profits early and move on to something else, which can then trigger a significant downturn in the investments that they sell.

Finding a balance

How you allocate your investment capital is one of the most important, and often difficult, decisions.

Your asset allocation strategy should always be in tune with your investment goals and your tolerance for taking risk.

While some investment trends do offer clear upside potential, keep in mind that others are just high risk and very likely to result in you making a loss.

 

^{Important Information}

^{Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) (“Vanguard”) is the issuer of the Vanguard® Australian ETFs. Vanguard ETFs will only be issued to Authorised Participants. That is, persons who have entered into an Authorised Participant Agreement with Vanguard (“Eligible Investors”). Retail investors can transact in Vanguard ETFs through Vanguard Personal Investor, a stockbroker or financial adviser on the secondary market.}

^{We have not taken your objectives, financial situation or needs into account when preparing this publication so it may not be applicable to the particular situation you are considering. You should consider your objectives, financial situation or needs, and the disclosure documents for Vanguard’s products before making any investment decision. Before you make any financial decision regarding Vanguard’s products you should seek professional advice from a suitably qualified adviser. . The Target Market Determination (TMD) for Vanguard’s ETFs include a description of who the ETF is appropriate for. You can access our IDPS Guide, PDSs Prospectus and TMD at vanguard.com.au or by calling 1300 655 101.}

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