ETF Education notebook

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.

  • Exchange traded funds are, very simply, index funds that trade like shares on a regulated stock exchange. The typical investment objective of an ETF is to provide investment results, before fees and expenses, which closely correspond to the performance of its underlying index.
    Like a managed fund, an ETF provides investors access to a portfolio of equities, bonds or other asset types such as commodities and property, providing diversification through a single trade.
    Like a share, an ETF is bought and sold on a stock exchange. Consequently, ETFs offer investors the best of both worlds – the diversification of an investment fund, with the easy tradability of a stock.

    ETF explained

    ETFs now track most major indices for stocks, bonds, commodities and many other asset types, opening the door to markets that may have been difficult for investors to access in the past.

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    Similarities and Differences

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

    COMPARING ETFS TO OTHER INVESTMENT PRODUCTS

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