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ETF Securities, a leading London-based provider of exchange-traded products (ETPs), has introduced a portfolio simulator aimed at retail investors looking to build ETP portfolios.
The simulator is designed to help retail investors to further familiarise themselves with ETPs and their associated benefits and risks.
ETP usage in Europe remains dominated by institutional investors. However, retail investors’ appetite for these products has increased significantly in recent years.
In 2013, retail investors and their advisers accounted for close to 12% of ETP turnover in the UK alone. As retail investors continue to look for highly liquid, cost-effective and transparent investment solutions, the size of the ETP market is predicted to grow accordingly.
The simulator, which is powered by Just ETF, a Stuttgart-based technology firm, enables investors to structure a hypothetical portfolio of ETPs issued by ETF Securities and visualise how they would have performed on a historical basis. It incorporates a number of features including various currency choices (EUR, USD, GBP, or CHF); multiple asset classes (equities, commodities and currencies); performance benchmarking against 87 possible indices; and the ability to flex the investment timeline from one month to five years.
Commenting on the launch, Frank Spiteri, Head of Retail Distribution Strategy at ETF Securities, said: “We have been focusing on educating retail investors on the importance of asset allocation and how ETPs can be used as building blocks to achieve their allocation. This simulator further strengthens our commitment to making ETP investing more accessible to the retail market. Furthermore, with the introduction of the Retail Distribution Review, we anticipate an increased use of these investment products by advisors offering fee-based services.”
He added: “The tool not only helps users understand the benefits and risks of investing through ETPs but encourages them to include asset classes such as commodities as part of a diversified portfolio. Gold represented 8% of the retail turnover in ETPs in the UK last year and this trend may continue as investors become increasingly aware that accessing commodities such as gold via ETPs is as easy as trading shares, without having to take physical delivery of the metal.”
While the simulator has the potential to be a useful guide for investors, a number of drawbacks prevent it from becoming a truly practical portfolio building tool. The biggest shortcoming is the restricted product line-up. The simulator’s exclusive use of ETF Securities products means that there are only a limited number of equity exposures available to investors and a complete absence of fixed income assets, often a core portfolio holding for retail investors.