101 Concepts for the Level I Exam

Essential Concept 91: ETFs in Portfolio Management

Primary ETF strategies include:

  • Portfolio efficiency: The use of ETFs to better manage a portfolio for efficiency or operational purposes. The applications include:
    • transacting cash flows for benchmark exposure
    • rebalancing to target asset class or risk factor weights
    • filling exposure gaps in portfolio holdings of other strategies and funds
    • temporarily holding during transitions of strategies or managers
  • Asset class exposure management: The use of ETFs to achieve or maintain core exposure to key asset classes, market segments, or investment themes on a strategic, tactical, or dynamic basis.
  • Active and factor investing: The use of ETFs to target specific active or factor exposures on the basis of an investment view or risk management need.