Understanding ‘core and explore’ investing

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Finding the right strategy in the ever-evolving world of investing can feel like searching for a needle in a haystack.

There are many factors to consider, including which asset classes to invest in, how much risk you are comfortable taking on, and your goals.

One popular strategy is the ‘core and explore’ approach, which involves investing most of your money in broad-based investments you intend to hold over the long-term – the core – and leaving you able to ‘explore’ different themes, regions and sectors through smaller exposures.

Blending the stability of a strong core portfolio with the potential for returns from tactical positions can provide a powerful foundation for investing success.

Benefits of using ETFs as a core

Some of the many benefits of the core and explore approach include decreased cost and portfolio turnover, particularly when using ETFs as the core.

Apart from lower management costs, turnover costs are often lower as the core portion of the portfolio typically is not adjusted frequently and comprises passively managed funds that normally trade their investments less than actively managed counterparts.

Having a passive low-cost, diversified core exposure generally reduces the fee load, compared to using active managers or regularly adjusting an entire portfolio. Broad market passively managed funds have historically demonstrated outperformance vs. most equivalent actively managed funds over the long term.1

For the core part of your portfolio, a diversified asset allocation is conventional wisdom. Holding multiple asset classes can help reduce the risk of poor performance in any single asset class jeopardising your entire portfolio, and can also help counter market uncertainties.

Of course, it’s important to review your portfolio regularly and rebalance as required to ensure you stay in line with your investment objectives.

Betashares offers several ETFs that can be used as core exposures.

Investors looking to add international diversification to their core equities portfolio may consider BGBL Global Shares ETF .

In one ASX trade, BGBL provides exposure to 1500 global companies across more than 20 developed market countries (excluding Australia).

BGBL could be used in combination with other core exposures such as A200 Australia 200 ETF .

A200 can be used as a core Australian equities allocation with its exposure to the largest 200 companies on the ASX, and low management fee of 0.04%*2(or just $4 for every $10,000 invested).

Investors after a one-stop-shop and that have a high-risk tolerance may consider the DHHF Diversified All Growth ETF .

DHHF is a diversified all-in-one ETF with exposure to approximately 8,000 shares listed on over 60 global exchanges.

Explore with ETFs

The ‘explore’ component of your portfolio gives you the opportunity to explore investments with the potential to generate extra returns, albeit this may come with higher risk.

These positions are more focused exposures than the broad market exposures that make up the core of your portfolio. It is generally recommended that such exposures make up a relatively small part of your overall portfolio.

Traditionally, ‘explore’ positions have been allocated to single stocks and/or active managers. However, given the wide range of low-cost and highly accessible ETFs now available, they present a compelling case to be used for this purpose.

For example, some ETFs offer exposure to specific sectors or themes, such as AI and robotics with RBTZ Global Robotics and Artificial Intelligence ETF

Other ETFs provide exposure to tackling climate change like ERTH Climate Change Innovation ETF or specific geographies such as HJPN Japan ETF – Currency Hedged .

This portion of your portfolio is where you can really put a personal touch and explore areas of the market that may be of particular interest to you. Using ETFs to do this allows you to take a tactical view for typically lower fees, without putting all your eggs into one basket.

Betashares core ETFs

Betashares core ETFs offer a simple and cost-effective way to build the core of your portfolio. A strong portfolio core helps you to navigate difficult markets, as well as laying the foundation for building wealth over the long term

Learn more about our core ETFs here.

Buy ETFs effortlessly with Betashares Direct

Betashares Direct is the new investing platform designed to help you build wealth, your way. Access our core ETFs through Betashares Direct, along with the 340+ other ETFs that trade on the ASX.

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There are risks associated with an investment in each Fund. Investment value can go up and down. An investment in any Fund should only be made after considering your particular circumstances, including your tolerance for risk. For more information on the risks and other features of a Fund, please see the relevant Product Disclosure Statement and Target Market Determination, available at www.betashares.com.au.

References:
1.https://www.spglobal.com/spdji/en/research-insights/spiva/
2. Other costs, such as transaction costs, may apply. Refer to the Product Disclosure Statement for more information.

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Written by

Annabelle Dickson

Annabelle Dickson was previously a journalist at Financial Standard and prior to that at The Inside Investor and The Inside Adviser. She holds a Bachelor of Arts in Communication (Journalism) from The University of Technology Sydney.

Read more from Annabelle.

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1 comment on this

  1. Silvio  /  26 July 2023

    As someone who manages his own SMSF, I have now, over the past 3 week incorporated mostly betashares ETF’s for my entire portfolio.

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