A lot of the discussion in the financial media around investor types typically pigeonholes investors into two groups: active and passive investors. Active investors are often looked to as the stock-pickers, while passive investors the exchange traded fund (ETF) aficionados.
However, with the rise of secular ETFs and a range of targeted options in the ETF space arising in recent years, active investors are increasingly utilizing these funds as a way of targeting a theme in a diversified way. Some active investors hold portfolios of ETFs, simply allocated toward thematic secular trends they see as game changing over the long term.
I’m of the belief that ETFs are to be used by every investor type out there. In my view, there’s really no other way investors can get diversification to any arrangement of baskets of stocks in a cheaper manner.
Given the thematic ETFs that exist today, I think all investors ought to consider these funds as direct options to picking the top two or three companies in a sector. This goes double for those who believe small caps could once again outperform in the years to come.
Of course, simplifying investing can be difficult for many to take to heart. The idea of putting all of one’s life savings in an ETF tracking one of the stock market indices can be a difficult one to consider. However, such an approach could be best over the long-term, as many active managers continue to fail to beat the benchmark on a yearly basis.
Invest wisely, my friends.
