What matters most

With more than 300 ETFs to choose from, the test for investors is to identify risk and strategy

- SUSAN HELY

The exchange traded fund (ETF) landscape is getting more crowded, with new funds regularly listing on the ASX. Last year was the busiest to date, with 52 new ETFs on the market.

It can be complex for investors, as not all ETFs are the same. In recognition of the different sorts of ETFs and to help confused investors, the regulator ASIC has ditched the managed fund label and introduced two labels - ETF and structured product - as well as secondary labels - active and complex - to identify risks and strategies.

But some industry analysts, such as Marc Jocum, senior manager of investments and business initiatives at Stockspot, believe there is more work to be done around naming conventions to identify risk and strategies.

He would like to see brokers and ETF issuers disclose to clients their active strategy in an instantly recognisable way.

"Investors don't want to be reading the product disclosure statements on every ETF. They just want to know, when they buy something, exactly what it is, which is why it's important that investors do their own research and look at what's under the hood of the ETF itself."

Focus on local shares
The most popular ETF area over the past year was Australian equities, which enjoyed the highest inflows with $4.4 billion.

There are roughly three sorts of Australian share ETFs, says Jocum, who researches ETFs at Stockspot, an online, robo advice group that builds ETF portfolios.

• The first one is the broad market Australian share ETFs such as those tracking the S&P/ASX 200 or 300. "It's a very vanilla exposure where it's simple and easy to understand," he says.

Most of the money in Australian share ETFs is in the broad market ETFs, because they can be used as building blocks for portfolios.