As confidence slowly gets back into the Aussie market, investors are now contemplating their next move. Analysts point out that diversifying more asset classes including ETFs over offshore indices, and investing with borrowed funds using CFDs can prove to be a wise approach.

The ETFs sector is anticipating a 15 % growth in funds this year with almost half coming from self-managed funds. The funds offer methods to reduce volatility by mixing into groups of stocks including; indices, sectors or strategy criteria. The more assets you hold, the more risk is reduced although the effect will wane away quickly. There is a theoretical case for a well rounded portfolio of as few as a four well considered ETFs.

Currency Trends
In currencies, the yen has seen heavy trade against the Australian dollar, euro and US dollar. An in and out quick positioning on the yen has been a very popular move as clients steer away from corrections. There is a broad view on these markets as being put together by stimulus which one day will turn out to be unwound.

Selecting ETFs
Year to date the fund has disbursed about 7 % but capital growth has delivered the largest kick with over 31 %. The fund picks from the top 100 stocks and stays within the market weightings for the banking institutions.
Investors are a multifaceted bunch and where some run from the risk, others charge towards it. Leverage products such as CFDs wherein investors put up a meager 5 % of the capital invested but agree to cover all of the losses plus additional costs are very enticing to straight-out risk takers.

Managing risk in CFDs
The unexpected drop in Gold in the start of the second quarter marks a reminder that using CFDs should be done with caution where an investor can end up losing more than what they initially capitalised. The positioning of gold was nearly 88 % long before the price inadvertently dropped. The dynamics was one that made the drop so sharp which led to a lot of investors scrambling out their assets.

Moreover, there has been an overall increase in the number of instruments investors are using to position themselves especially that there is an increase in short positions. This strategy involves selling one particular set of asset which you can actually make do through a CFD broker without actually owning the asset itself while buying another.

The overall impact from the moving market is less but it is also a lower-risk way to position oneself in the market. In general, the ambiguity and vagueness in the Aussie market could well be a driver as the S&P/ASX200 fluctuates between 4880 and 5200 points. Fingers are crossed and hopes are high as the market breaks out preferably towards an upward trajectory.

Last Updated: January 20th, 2021