Portfolio diversification with ETFs - Mirel Flavius Popa

Author: Mirel Flavius Popa
Vol. 2 • No. 3 • November 2017


The research paper intends to highlight the characteristics and demonstrate the benefits of an increasingly popular investment product, the Exchange-Traded Fund (ETF). Although it has been around for at least two decades, it began to attract most of the inflows after the Global Financial Crisis of 2007-2008, the industry’s assets under management growing by more than 300% since then. The case study outlines the benefits of investing in ETFs by comparing its return and risks to a stock-only portfolio. Using weekly closing prices for fifteen ETFs and stocks, the market and minimum-variance portfolio and also the Value at Risk model have been computed for a two-year period (2015-2017). The final chapter provides an outlook of the Exchange-Traded Fund industry, addressing the main opportunities and challenges that will arise in the coming years.

Keywords: ETF, portfolio diversification, portfolio management, investment funds, capital market, personal finance.

JEL classification: G11, G23