Cash equitization

ETFs can also be a good option for an investor who has a large temporary cash position, or when transitioning assets between managers.

Such a cash position may tilt an investor's portfolio away from its targeted equity or fixed income allocation. Over extended periods, that position can result in performance shortfalls relative to benchmarks or financial goals. Why? Historically, equity and fixed income markets have had more periods of positive returns than periods of negative returns. The longer the time period, the stronger this performance bias. Investing a temporary cash position in ETFs reduces the likelihood of such performance shortfalls.

Point to consider

  • Equities could underperform cash during the transition period.
  • Trading costs may offset some of the potential advantages.

ETF fundamentals