How to integrate an ETF into your portfolio

As Russ Mould, investment research director at AJ Bell, explains, how you structure the portfolio depends on your investment goals, target return, time horizon and appetite for risk.

ETFs allow you to structure a portfolio according to your view of the world. For example, he says: 'An investor who is happy to get broad exposure to equities, target income and operate on a long-term time horizon could consider instruments such as iShares FTSE All World, db x-trackers FTSE 100, HSBC Euro Stoxx 50, SPDR S&P Emerging Markets Dividend and SPDR S&P US Dividend Aristocrats. Each of these uses physical replication.

'Long-term investment themes such as demographic change and the pressure this puts on global food chains and healthcare services could also appeal to some patient investors, providing they are willing to accept some volatility in performance.'

agriculture exposure

He suggests investors might use ETFS Agriculture, which tracks the price of nine individual crops, or ETFX S-NET Global Agri-business, which seeks to deliver the stock market performance of a basket of companies who provide equipment and fertiliser as a way of boosting productivity from existing farm assets.

'If you believe a strong economic recovery is coming you could take a more aggressive stance through the addition of mid- and small-cap exposure via iShares FTSE 250 or ETFS Russell 2000, which tracks the US's leading small-cap benchmark index,' he adds.

Anyone concerned about the threat of sluggish growth or even deflation who believes central bank interest rates will remain lower for longer than the markets expect, could investigate ETFs that track bond indices.

iShares UK All-Stocks Gilt gives holders exposure to UK government debt, while anyone looking for a higher yield could take a look at iShares £ Corporate Bond.

An investor who takes the opposite view and fears inflation could target gold and gold mining stocks as a potential hedge, via ETFS Physical Gold or iShares Gold Producers, Mould says.

If you want to invest in an ETF please consider Interactive Investor, our sister site and award winning brokerage.

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