Smart investors know that success isn’t just about picking winners — it’s about constructing a diversified portfolio that can provide stable returns through market ups and downs.
Exchange Traded Funds (ETFs) offer an easy way to get exposure to a broad range of asset classes and markets. Explore core and niche strategies, asset allocation insights, and how Smart’s ETFs can serve as building blocks for a robust investment strategy and long-term success.
This article explores how to use ETFs to build a diversified portfolio tailored to your investment needs and ambitions.
Any journey starts with a destination
Most of us have a clear destination in mind before we embark on a trip. The same should apply to our investment journey. Investing with clear goals provides direction and helps keep us on track.
Goals can include saving for retirement, education, a house, generating income or simply building wealth. Having clear goals, as well as understanding your risk profile, helps clarify what mix of investments is most suitable for you.
Building a portfolio
How you approach investing in Smart ETFs will depend on your individual circumstances and financial goals. To create a balanced portfolio – one that spreads risk by diversifying across and within the main asset classes – start by assessing your investing timeframe, financial goals, risk tolerance and circumstances. These factors will guide you in determining an appropriate asset allocation and selecting suitable funds within each asset class.
Asset allocation describes how your portfolio is spread across the four primary asset classes: cash, bonds, property, and shares. Cash and bonds are typically grouped as ‘income assets’ while property and shares are categorised as ‘growth assets’.
Deciding how to allocate a portfolio between ‘income assets’ and ‘growth assets’ is an important decision. Income assets generally offer lower risk but provide more modest returns, whereas growth assets come with higher risk but the potential for greater returns. Investors with a longer investment horizon and a higher risk tolerance may favour a greater allocation to growth assets, while investors who have a shorter timeframe may prefer a higher allocation of income assets.
Smart ETFs as portfolio building blocks
Smart offers over 40 ETFs, providing exposure to a range of asset classes and markets. Each ETF provides exposure to a range of securities, such as listed companies or government bonds, which helps to spread risk more broadly. This wide selection of funds, along with the range of securities held within each ETF, makes Smart ETFs ideal ‘building blocks’ for creating a balanced portfolio tailored to investors’ personal needs.
Each ETF holds a range of securities, for example,
- The Smart US 500 ETF (USF) tracks the return of the S&P 500 Index, containing 500 of the largest US listed companies – including Apple, Amazon, Microsoft, Berkshire Hathaway, and 496 others.
- The Smart Australian Top 200 ETF (AUS) tracks the return of the S&P/ASX 200 Total Return Index, containing 200 of the largest companies listed on the ASX.
This means the purchase of a Smart ETF provides you with instant diversification. Holding a range of underlying investments like this spreads your risk more broadly and aims to smooth out volatility in your investment portfolio.
Additionally, the Smart ETFs are listed as Portfolio Investment Entities (PIEs). This enables investors to build a global portfolio in New Zealand dollars, without having to worry about the complexity of managing foreign currencies or overseas tax.
A ‘core-niche’ approach
A well-diversified portfolio is key to managing risk, but you may also want to make more active, higher-risk investments. A core-niche strategy provides a way to maintain stability while selectively exploring new opportunities.
In this approach, your core portfolio consists of your key long-term investments that typically make up the majority of your overall portfolio – often 80% or more.
Meanwhile, niche investments are smaller, more dynamic positions, such as sector-specific or thematic ETFs, allowing you to take advantage of emerging trends or market opportunities.
By using this strategy, you can strike a balance between stability and flexibility, keeping your core investments on track while exploring areas of higher potential growth.
Using building blocks in a core-niche approach
Niche positions can be added to ‘tilt’ the portfolio to suit needs of preferences. For example, towards value or growth, higher income, specific sectors, geographic regions, or asset classes.
Core exposures provide diversified exposure across the main asset classes and markets. These holdings are the foundation of a portfolio
Smart Core series
For investors looking to build a solid foundation for their portfolio, our Core series is a great place to start. This selection of 10 ETFs covers a diverse mix of markets, industries and asset classes.
Designed for simplicity and efficiency, the Core Series makes it easy to build a diversified portfolio quickly and at low cost.
Creating a diversified portfolio made up of core and niche holdings
An example of how Smart ETFs can be combined into a portfolio
The example shown in table 1 uses a balanced asset allocationi and shows how six Smart ETFs from our Core Series could fit together to form a long-term core portfolio. Chart 1 shows how this mix of funds provides exposure to each asset class. Please note this is an illustration only and is not intended as financial advice or a recommendation of the funds listed or asset allocation. Investors can combine any mix of funds of their choosing to create a portfolio that is suitable to their needs, preferences and risk profile.
A key benefit of using funds is the diversification they provide. It demonstrates the degree of diversification possible by using Smart ETFs as portfolio building blocks. The six Smart ETFs shown in the example below provide exposure to approximately 10,700 underlying securities across the main asset classes.ii The combined fund charge across these funds is 0.32%. They also provide an income stream from distributions. The combined trailing dividend yield is 1.85%. Niche ETFs could be added to this core portfolio.
Table 1. An example portfolio using Smart ETFs from our Core Series
Notes to Table 1.
1 The funds selected, and the allocations to each fund, are for illustrative purposes only.
2 This is a historic, or ‘trailing’, dividend yield. It is calculated by summing the distributions paid over the prior 12-months (including imputation credits) and dividing this by the current market price (at the end of the business day).iii Yields sourced from the Smart website on 10 April 2025. Investors should be aware of distribution risk. This is the risk that distributions paid by the fund may not meet your expectations. The distributions we make depend, largely, on the distributions we receive from the financial products held by our funds, which can be volatile. As a result, distributions may not align with your expectations.iv Any distributions are paid in New Zealand dollars and automatically reinvested for you, unless you choose to receive them in cash.
3 The manager may change when distributions are paid at any time following consultation with the supervisor.v
4 Number of holdings for all funds sourced from the Disclose Register, based on 30 September 2024 information, except for the Smart Total World ETF which is based on information sourced from the Vanguard Total World ETF website on 10 February 2025.
Chart 1. A diversified ‘core’ portfolio with Smart ETFs
Deciding which funds are core and niche
Investors will have different views on which ETFs are considered core, and which are niche investments. In our view, core funds typically invest in larger, more stable companies and offer broad exposure across markets. Core fixed income funds typically hold higher credit-rated securities. In contrast, niche funds tend to be more focused on specific markets, sectors or themes, and are generally higher risk than core funds.
Footnotes:
A simplified asset mix based on the SuperLife Balanced Fund.
ii. Property is not shown as a separate asset class, but the portfolio provides exposure to property as the Smart S&P/NZX 50 ETF and the Smart S&P/ASX 200 ETF include listed property companies. Property ETFs, such as the Smart Global Property ETF (GPR), can be added to a portfolio to provide an explicit allocation to this asset class.
iii. Calculation method sourced from the Smart website
iv. Based on Smart ETFs Other Material Information. 10 October 2024. Page 6.
v. Smart ETFs Core Series Product Disclosure Statement, 10 October 2024. Page 6.
This information is issued by Smartshares Limited (Smart). Smart is the issuer and manager of the Smart Exchange Traded Funds. The product disclosure statements are available at smartinvest.co.nz.
Past performance is not a reliable indicator of future performance. The value of investments can go down as well as up and investors may not get back the full amount invested, nor any particular rate of return referred to in this article. Returns are not guaranteed. This information is intended to provide a general guide to building a diversified portfolio and is based upon, and derived from sources Smart considers reliable. At the date of issue, Smart believes this information to be accurate and complete, however Smart does not provide any warranty or guarantee in this respect. Neither Smart or its respective directors and employees accept any liability for any errors, omissions, negligent misstatements, or for the results of any actions taken, or not taken in reliance on this information. This information is not a substitute for professional advice. In preparing this information, Smart did not take into account the investment objectives, financial situation or particular needs of any particular person. Accordingly, before making any investment decision, Smart recommends seeking professional assistance from a licensed Financial Advice Provider.