INVESTORS who eschew the unfamiliar for the tried-and-tested needn't be intimidated by the array of new investment instruments out there. Some may make it easier to build a portfolio spread across sectors or countries. Here, we bring you up to speed with new products that can do just that.

Any investor would recognise the basic rule of structuring an investment portfolio - that diversification is key. A diversified portfolio that spreads investments out over different asset classes - cash, bonds, equities and property - reduces risk exposure. Research has also borne out that 40-90 per cent of investment returns can be attributed to getting the mix right.

And while the sheer scale of investment instruments available, from options and futures to hedge funds and Reits, may confound you, there are some that are worth exploring when structuring your portfolio.

Just as unit trusts have made it possible for small investors to diversify their portfolios without large capital outlays, a proliferation of exchange-traded funds (ETFs), as well as new instruments like participation certificates are giving investors different investment opportunities and easier access into emerging markets and new sectors. Probably best understood as hybrids of index unit trusts and stocks, ETFs and participation certificates aren't as complicated as they seem, and may actually marry the best features of these asset classes.

For instance, ETFs provide diversification as unit trusts do because they comprise a basket of stocks tied to a particular index. That they can be traded like a  stock, however, greatly increases their flexibility over unit trusts.

Zero-Strike Participation Certificates (including  ABN Amro's Zero Certs which were listed on the Singapore Exchange in June this year) operate on the same principle. And even though they are classified as structured warrants, lay investors whose investment lexicon doesn't extend beyond the basics needn't be too frazzled by the jargon.

While Zero Certs may be new to these shores, investors can take heart that the structured warrants (which Zero Certs come under) market has grown in the last three years and account for up to 25 per cent of SGX's trading volume.

Listed investment certificates are popular in Germany where they have grown to a multi billion-euro market. The certs also appear to be gaining popularity in Italy, Switzerland and the Netherlands in the last few years.

Investing in Zero Certs is equivalent to buying into a basket of index component stocks of a particular country or particular theme. Like exchange traded funds (ETFs), they are index-linked and can be traded on the exchange. However, unlike ETFs and unit trusts, which are open-ended, Zero Certs have a tenor or maturity period of three years.

Where ETFs seek to mirror the performance of particular broad-based indices like the Hang Seng or Straits Times index, or a market sector such as energy or technology, or a commodity such as gold, Zero Certs offer access to emerging markets and less traditional themes.

In a nutshell, investors who have been kept from investing in shares of companies listed on the foreign stock exchanges of emerging markets because of trading restrictions and settlement intricacies can utilise Zero Certs to finally get a foot in.

So while exchange traded funds, unit trusts and zero certificates share a number of characteristics, the different ways they are structured also yield different advantages of holding one over the other.

Delvin Tan is a director at ABN Amro Global Markets' Private Investor Products

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