What is an ETF and why are people investing in them?


Units in exchange-traded funds (ETFs) are easy to buy and sell as they are listed on sharemarkets, just like shares in listed companies, except they can provide broad-based returns across entire markets instead of just the one company.

Many simply track or mirror the returns of a market, whether it is a benchmark sharemarket index, sub-index or the price of a particular commodity, or precious metal, such as gold. Some invest in themes, such as cybersecurity, that invest in companies around the world or in clean energy or cloud computing, as well as ethical investing themes.

ETFs are a low-cost way of adding instant sharemarket diversification to an investment portfolio.

ETFs are a low-cost way of adding instant sharemarket diversification to an investment portfolio.Credit:Kathleen Adele

Investors’ money is flowing into ETFs because their units are easily bought and sold and their prices reflect the performance of the companies or other types of securities make up the ETF, or the price of the market being tracked. They are a low-cost way of adding instant sharemarket diversification to an investment portfolio.

What are some big ETFs?

The largest ETFs listed on the Australian Securities Exchange are those that track Australian sharemarket indices, such as the index of the largest 200-listed Australian companies. Other popular ETFs include those that track US sharemarket indices, such as the S&P 500 index and the technology heavy NASDAQ 100 index. ETFs that track the prices of commodities are also popular.

Who are the big ETF providers and how do I invest

Vanguard, BetaShares and iShares are the big three ETF providers in Australia in terms of funds under management, with VanEck and State Street the next largest. To invest, you need to open an account with a broker or online trading platform and units in ETFs are bought and sold in the same way as sharemarket listed companies.

Brokerage is charged each time units in an ETF (or shares in a company) are bought and sold. The banks each have trading platforms, and there are others, such as Stake and superhero, among others, that offer competitive brokerage fees.

Can you invest in a cryptocurrency-based ETF?



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