What is an ETF?

An Exchange Traded Fund (ETF) is a diversified collection of assets (like a managed fund) that trades on an exchange (like a share). It blends the benefits of both managed funds and shares and offers investors a simple and cost-effective way to achieve diversification in their investment portfolios.

  • Since the launch of the first ETF back in 1990, the industry has grown rapidly. Product innovation has continued to drive investor interest, with major breakthroughs in 2000 and 2004 when the first fixed income ETF and the first commodities ETF were launched, giving investors the ability to access bonds and physical commodities such as gold.

    ETFs provide a broad range of index products that offer investors efficient and transparent access to targeted market exposures. For many years, the global ETF market was dominated by professional investors such as superannuation funds, government institutions and private banks. Now, ETFs are also becoming increasingly popular among retail investors who are keen to take advantage of the many benefits offered by this innovative investment solution.

Comparing ETFs to other
investment products

To see how ETFs compare to other products in the market, refer to the chart below:

 

ETFBONDSSHARETRADITIONAL MANAGED FUND
Diversification of investment within the asset class High - Basket of securities Low - Individual securities Low - Individual securities Depends on different funds - Basket of securities
Pricing Continuous on exchange intra-day pricing No centralised exchange or trade history Continuous on exchange intra-day pricing Daily quote after market close
Liquidity Comparatively Higher Varies Varies Varies between daily, monthly and quaterly
Transparency Fund holdings disclosed as often as daily N/A N/A Varies
Transaction costs Varies, according to brokerage Varies but can have high buy/sell spreads Varies, according to brokerage Varies, according to brokerage and fund manager
Management Fees Typically less than traditional managed funds N/A N/A Active funds generally incur higher management costs
Accessibility High Low for many bonds High Varies depending on fund
Limit order Yes No Yes No