An exchange traded fund (ETF) is a basket of securities—such as stocks, bonds, currencies or commodities—that can be bought and sold in a single trade on an exchange. They generally track the performance of an index, less fees, and offer targeted exposure to a specific market segment, such as an asset class, geography, sector, or investment theme.
In essence, ETFs are funds that trade like stocks with the diversification benefits of mutual funds. In one trade, they can offer diversified, low-cost, transparent and tax-efficient exposure to companies across the globe.
Understanding the benefits of ETFs is an important step toward determining whether ETFs can be an appropriate choice for your portfolio.
Lower Expense Ratios
There are risks associated with investing in ETFs. Before deciding whether to acquire or continue to hold an ETF you should read the product disclosure document for a full list of all risks.
Creation and Redemption Process The process whereby an ETF issuer takes in and disburses baskets of assets in exchange for the issuance or removal of new ETF shares.
Limit Order An order placed with a broker to buy or sell a set number of shares at a specified price or better.
Liquidity The degree to which an asset or security can be bought or sold in the market without affecting the asset’s price. Liquidity is characterised by a high level of trading activity.
Primary Market The market where shares of an ETF are created or redeemed.
Secondary Market A market where investors purchase or sell securities or assets from or to other investors, rather than from issuing companies themselves. The Australian Securities Exchange is a secondary market.
Passively managed funds hold a range of securities that, in the aggregate, approximates the full Index in terms of key risk factors and other characteristics. There can be no assurance that a liquid market will be maintained for ETF shares.