Education

What is an ETF?

An Exchange Traded Fund (ETF) is a an open ended fund traded on a stock exchange. Typically, the aim of an ETF is to:

  • Replicate the return of an underlying benchmark or strategy.

  • provide the same return as a specific index or asset class*.

ETFs offer investors access to a variety of asset classes at a relatively low cost and can be used as the building blocks of multi-asset portfolios. Investors can benefit from the broad diversification of an equity benchmark, gaining exposure to hundreds or thousands of individual securities in a single transaction.

Characteristics and benefits

LOW COST

Lower cost way to access diversified market exposure than an actively managed fund or buying a number of individual stocks.

LISTED ON EXCHANGE

Shows exactly how your investment is performing.

TRADE LIKE SHARES

Buying and selling as easily as shares any time the market is open, using normal brokerage accounts.

LIQUID ASSET

ETFs are, in general, as liquid as the underlying asset that they hold.

TRACKS THE UNDERLYING

Aims to provide the same return as underlying benchmark or asset.

PROVIDES ACCESS

Offers investors access to a broad range of markets and asset classes.

TAX EFFICIENT

Tend to have lower turnover than an actively managed fund, therefore realising less capital gains on buying and selling underlying assets.

Why use an ETF?

FLEXIBLE

ETFs can be used to achieve numerous investment strategies.

ACCESSIBLE

ETFs can be bought and sold at a known price whenever the stock exchange is open as prices are quoted throughout the day.

COST-EFFECTIVE

ETFs provide a cost-effective way to gain diversification through a benchmark or exposure to assets previously difficult to access.

TRANSPARENT

Unlike other investment vehicles, ETF constituents are published on a daily basis – this transparency makes it easier for the investor to see exactly what they own.

SIMPLE

ETFs are listed and traded in a similar way as shares through the same brokers and platforms.

*Before fees and expenses

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ETFAQ

Oct 10, 2018

The educational guide to Australian Exchange Traded Funds (ETFs)

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