Australia’s exchange traded product (ETP) market has emerged as one of the fastest growing investment markets in recent times with the local ETP market now worth more than $23 billion.

As the slide below highlights, there are a number of a different asset classes investors can gain direct exposure to with ETPs including fixed income, commodities and global equities.

Source: ASX Funds Monthly Update - May 2016

Source: ASX Funds Monthly Update – May 2016

There are a number of reasons why ETPs have become so popular in Australia, but two of the biggest reasons for their success is their low fees compared to traditional managed funds and because they can offer instant diversification (or very specific exposure in some cases) for investors with limited amounts of capital.

Many of these features appeal directly to self managed superannuation fund (SMSF) investors and a number of ETP providers continue to report increasing demand from this segment of the investment market.

The rising popularity of ETPs has also seen some providers develop more innovative products that give exposure to various investment strategies that are not typically available to the retail investor.

One of the biggest providers of ETP products in Australia is BetaShares and it has three products that offer investors an alternative way to invest in the market:

Betashares Australian Dividend Harvester Fund (ASX: HVST) – This is an exchange traded fund (ETF) that is targeted towards investors looking for a high level of dividend income such as retirees and SMSF investors. The fund pays a monthly dividend and also aims to reduce the volatility of investment returns using a hedging strategy that involves selling ASX 200 SPI futures. This strategy has helped it to outperform the broader market over the past 12 months and the fund is currently trading on an estimated 12-month grossed up dividend yield of 15.4%.

BetaShares S&P 500 Yield Maximiser (ASX: UMAX) – This is an interesting ETF that provides Australian investors with exposure to the 500 largest shares on the US share market and, at the same time, aims to provide a stream of regular income that exceeds the dividend yield of the shares alone. The fund does this by earning extra income from writing call options against the ETF’s exposure to the S&P 500 Index. The current estimated 12-month distribution yield is 6.4%.

BetaShares Australian Equities Strong Bear Hedge Fund (ASX: BBOZ) – This is an easily accessible ETF that provides investors with the ability to hedge their portfolios from a fall in the Australian share market or to profit when markets decline. The fund utilises a leveraged short selling strategy using ASX SPI 200 futures and investors can expect a 1% fall in the Australian share market to deliver a 2.0% to 2.75% increase in the value of the fund (and vice versa). This could be a useful tool for many investors as it means they can use this ETF to hedge their portfolio against falls rather than having to sell individual shares which can be costly from a tax and brokerage point of view.

Foolish takeaway

ETP providers are constantly developing new products that appeal to a wide range of investors and many of these can be helpful in managing your portfolio.

It is important to remember, however, that all ETPs still carry risks and investors need to understand how these risks can affect the investment returns of each individual product.

If you are not interested in ETPs, then you should consider these three fast growing blue chip shares instead.

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Motley Fool contributor Christopher Georges has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.